IB Economics HL Paper 3: The Calculations You Need
The calculations that come up in IB Economics HL Paper 3, from elasticities to the multiplier, and how to handle the policy recommendation at the end.
Paul WilliamProfessional ACCA, CIMA & IB Business Lecturer in SingaporePaper 3 is the HL-only policy paper in IB Economics, and it is worth 30% of the HL grade. It combines calculations, explanations and a final policy recommendation. Students who are quick and confident with the numbers have time left for the recommendation, which carries a large share of the marks. This guide covers the calculations you need and how to approach the paper.
How Paper 3 works
Paper 3 has two compulsory questions, each based on a set of data about a real or realistic economy. Each question works through a series of calculations and short explanations, and ends with a policy recommendation in which you use the data and theory to recommend what the government should do.
Microeconomic calculations
- Elasticities: price elasticity of demand, income elasticity of demand, cross elasticity of demand and price elasticity of supply. Our PED guide covers the formula and the link to total revenue.
- Linear demand and supply functions: finding equilibrium price and quantity, and showing changes on a diagram.
- Taxes and subsidies: the effect on price and quantity, tax revenue, subsidy cost, and changes in consumer and producer surplus.
- Price controls: shortages and surpluses created by maximum and minimum prices.
- Costs, revenues and profit: calculating these from data, and identifying the profit-maximising output.
Macroeconomic and global calculations
- National income: nominal and real GDP, GDP per capita and growth rates.
- The multiplier: calculating it from the marginal propensities and using it to find the final change in national income.
- Inflation and unemployment: weighted price indices, inflation rates and the unemployment rate.
- Exchange rates: converting between currencies and calculating appreciation or depreciation. See our exchange rates guide.
- Trade: the effects of a tariff on prices, revenue and welfare, terms of trade, and current account balances.
Tips for the calculations
- Show every step. Write the formula, substitute the numbers and give the answer with units.
- Check the units and scale. Data in millions or percentages trip up many students.
- Use your earlier answers. Later parts often build on earlier results, so keep working even if you are unsure of an earlier figure.
The policy recommendation
The recommendation is where many students lose marks. A strong answer:
- uses the data from the question and your own calculations
- applies relevant economic theory, with a diagram where useful
- considers the costs and benefits for different stakeholders and the short and long run
- ends with a clear, justified recommendation, not a list of possibilities
Get help
Paul William teaches IB Economics HL at TutorPOD, with regular timed Paper 3 practice so the calculations become routine. See IB Economics HL tuition, or read about market failure, a common Paper 3 theme.