IB Economics HL Paper 1 November 2025

IB Economics November 2025 Paper 1 HL Topic by Topic

This is my personal analysis of every topic area tested in the IB Economics November 2025 HL Paper 1 - what the examiner was in my opinion really looking for, the content you need to master, and step-by-step instructions on how to structure a high-scoring response.

Lawrence's note 1: I don't reproduce IB copyrighted exam papers or materials, as this would be unauthorised use, reproduction, distribution, or display of copyrighted material, and therefore, would violate the exclusive rights of the IB Institution. I just make a summary from a teacher's point of view, of everything you actually need to prepare in order to be successful at a paper 1 similar to this one.

1 hour 15 minutes - 25 marks total - Choose One question and answer - Three sets of questions available each containing 1 (10 marks) + 1 (15 marks) questions.

Lawrence's Note 2:

What follows is not a set of predicted questions or a likely topics list. This would not be realistic and be wary of websites and sources that sell "predicted questions" for IB Economics. This is a topic-by-topic breakdown of what the IB Economics Board actually tested in November 2025 for Paper 1 HL, written to help my students understand the depth of knowledge required in each area of the IB Economics paper, and teach them how to approach this particular paper and papers similar to this one.

Unlike other exam boards, the IB rarely / never rewards memory reproduction / memorising alone.

Every topic here was examined in a way that required genuine economic reasoning, and that is what this page prepares you for IB Economics Evaluation + reasoning + Critical thinking.

A teacher-led breakdown of every question on the November 2025 HL Paper 1 - what each part was really asking, what the mark scheme credited, and how to structure a response that reaches the top band. Questions are described by topic, not reproduced verbatim.

Date: November 2025 | Duration: 1 hour 15 minutes | Total marks: 25 | Answer ONE question

Question 1 - Monopoly and Market Power

Module 1 - Microeconomics

Part (a) - Why a monopoly firm can earn abnormal profits in both the short run and the long run [10 marks]

Command word: Explain. Present a clear causal account - each point needs a mechanism, not just a statement. The question specifically asks about both the short run and the long run, so both must be addressed.

What some of my students got credit for

• Terminology: abnormal profit, monopoly, short run, long run, barriers to entry - all defined accurately.

• Theory: explanation of how a monopoly earns abnormal profit in the short run (price exceeds average total cost at profit-maximising output); and why it can sustain abnormal profit in the long run (barriers to entry prevent new firms entering and competing profits away).

• Barriers to entry: the mark scheme explicitly states that strong candidates provide detail on different types of barriers.

• Diagram: monopoly diagram showing abnormal profit - the profit-maximising output where MR = MC, price set from the demand curve above that output, and the abnormal profit rectangle (price minus ATC, multiplied by quantity).

Model Answer Framework - 5 steps to 9–10 marks

1. Define key terms. Abnormal profit (also called supernormal profit) is profit above the normal return required to keep a firm in the industry - that is, total revenue exceeds total cost including opportunity cost. A monopoly is a market structure with a single seller who faces the entire market demand curve and has significant price-making power.

2. Explain short-run abnormal profit. A monopoly firm profit-maximises by producing where MR = MC. Because it faces a downward-sloping demand curve, it sets price above marginal cost. As long as price exceeds average total cost at that output level, the firm earns abnormal profit. This is also possible in perfect competition in the short run - the difference lies in what happens next.

3. Explain why abnormal profit persists into the long run. In a perfectly competitive market, abnormal profits attract new entrants, who expand supply and compete profits down to normal in the long run. In monopoly, barriers to entry prevent this process. New firms cannot enter, so the abnormal profit is not competed away. This is the critical distinction and the core of the answer.

4. Explain barriers to entry in detail. Cover at least three types:

   (a) Legal/statutory barriers - patents, licences, and government franchises give one firm the exclusive right to produce (e.g. pharmaceutical patents protecting drug manufacturers for up to 20 years).

   (b) Economies of scale / natural monopoly - in industries with very high fixed costs (water, rail infrastructure), the average cost of an established firm falls so far below any potential entrant's costs that entry is not economically viable.

   (c) Control of key resources - ownership of essential inputs blocks rivals (e.g. a firm controlling the only viable mineral deposit in a region).

   (d) Brand loyalty and network effects - high switching costs and established user bases deter new entrants (e.g. dominant platform businesses).

   (e) Limit pricing - the incumbent keeps price just below the level that would make entry profitable, sacrificing short-run profit to deter entry and protect long-run abnormal profit.

5. Draw and explain the monopoly diagram. Show the downward-sloping demand (AR) curve and the MR curve below it (MR bisects the distance to the vertical axis). Draw MC and ATC curves. Mark Q* where MR = MC, then read price P* off the demand curve above Q*. Shade the abnormal profit rectangle between P* and ATC at Q*, across the quantity Q*. Label all curves and points. Annotate: "abnormal profit persists in both short run and long run due to barriers to entry."

Diagrams You Must be Able to Draw

• The monopoly profit diagram is non-negotiable for the 7–10 band. Examiners require: downward-sloping AR (demand) curve; MR curve below AR with twice the slope; MC curve (U-shaped or upward-sloping); ATC curve (U-shaped, lying above MC). Mark Q* (MR=MC intersection), P* (price read from demand curve), and ATC at Q*. The shaded rectangle P*–ATC × Q* is the abnormal profit. Many candidates draw the diagram but fail to annotate it or explain what the shaded area represents - this is the difference between 7–8 and 9–10.

What Examiners Are Looking For

• 9–10: Both short run and long run explained with the mechanism clearly articulated; multiple barriers to entry explained (not just listed); fully labelled and explained diagram.

• 7–8: Both time periods addressed; at least two barriers to entry; diagram included and explained; mostly correct terminology.

• 5–6: Partial - only one time period developed, or diagram present but unexplained, or barriers listed without explanation.

• 3–4: Theory described but not explained; limited terminology; diagram absent or unlabelled.

Master These topics at the IB Trainer:

IB Economics Monopoly Page

IB Economics Monopoly Hub Page

IB Economics Diagrams Page Check Unit 13 for All Monopoly and Market Power diagrams with explanations

IB Economics Activity book Page Module 2 Microeconomics Unit 2.16 for Monopoly exam practice, activities, model answers and IB Economics Marking schemes

IB economics Calculations Book make sure you check unit 11 for Monopoly calculations exercises, IB model answers, and IB marking schemes

Part (b) - Whether firms with significant market power are desirable [15 marks]

Command term: Discuss. Present arguments on both sides, weigh them against each other, and reach a supported judgement. Real-world examples must be developed in the context of the argument. This is an open-ended "whether" question - a strong conclusion that comes down clearly on one side (with justification) is rewarded.

What You Get Credit For

• Terminology: monopoly, oligopoly, market power - used accurately throughout.

• Diagram: a monopoly or oligopoly diagram; optionally a comparison with perfect competition showing welfare loss (deadweight loss triangle).

• Arguments in favour of market power: economies of scale (lower long-run average costs, potentially passed on to consumers); natural monopoly (it is efficient for one firm to serve the entire market); ability to invest abnormal profits in R&D → innovation, new technologies, improved product quality; dynamic efficiency over long run even if statically inefficient; state-owned monopolies may pursue social objectives rather than profit.

• Arguments against market power: abuse of pricing power - price above competitive level, reducing consumer surplus; output restricted below allocatively efficient level (P > MC) → deadweight welfare loss; productive inefficiency (X-inefficiency - no competitive pressure to minimise costs); reduced consumer choice; potential for anti-competitive behaviour (predatory pricing, collusion in oligopoly).

• Real-world examples: monopoly or oligopoly firms - tech giants (Google, Apple, Amazon, Meta), pharmaceutical companies, utility providers (water, energy), state monopolies.

How to Structure Your 15 Mark Answer

1. Introduction. Define market power (the ability of a firm to set price above marginal cost). Note that significant market power exists in monopoly and oligopoly. State that desirability depends on the industry, the behaviour of the firm, and whether regulation exists - the answer is genuinely context-dependent.

2. Arguments supporting market power as desirable.

   • Economies of scale: In industries with high fixed costs, a single large firm can produce at much lower average cost than many small firms. If economies of scale are significant enough, the lower cost of monopoly production may outweigh the loss from higher prices - the classic natural monopoly argument (water distribution, electricity grid). Splitting the network into competing firms would mean each operating at higher average cost.

   • R&D and innovation: Abnormal profits provide the funding and the incentive to invest in research and development. Schumpeter's argument: dynamic efficiency in the long run outweighs short-run static inefficiency. Apply: pharmaceutical companies use patent-protected monopoly profits to fund drug development. Without the temporary monopoly, the incentive to invest in costly R&D disappears.

   • Real-world example: Amazon's dominance in cloud computing (AWS) enabled it to invest billions in infrastructure, reducing the cost of computing services for millions of businesses - a case where market power funded innovation with broad benefits.

3. Arguments that make market power undesirable.

   • Allocative inefficiency: A profit-maximising monopoly sets P > MC. Resources are under allocated to this market relative to the socially optimal level. Show on the diagram: the deadweight welfare loss triangle between the competitive output and the monopoly output, below the demand curve and above MC. This welfare loss represents consumer surplus that is neither transferred to the producer nor enjoyed by consumers - it is destroyed.

   • Productive inefficiency and X-inefficiency: Without competitive pressure, monopolists have less incentive to minimise costs. Costs may rise above the minimum possible level - X-inefficiency. Employees and management may pursue easier lives rather than cost reduction.

   • Abuse of market power: Firms with dominance may engage in predatory pricing (temporarily cutting prices below cost to drive out rivals), tying and bundling, or collusive behaviour in oligopoly to maintain high prices collectively.

   • Real-world example: Google has faced antitrust investigations and fines across the EU and US for using its search engine dominance to favour its own products and disadvantage competitors - a concrete case of market power harming consumer welfare.

4. Synthesis. Whether market power is desirable depends critically on: the industry (natural monopoly vs manufactured dominance); whether the firm is regulated (a regulated utility monopoly is very different from an unregulated digital platform); whether abnormal profits are reinvested in innovation or extracted as dividends; and whether the state owns the monopoly with a social mandate. The simple "monopoly is bad" conclusion ignores cases where market power concentration produces genuine efficiencies.

5. Conclusion. Firms with significant market power are not categorically desirable or undesirable. Where market power arises from genuine scale economies or enables sustained R&D investment, it can generate net social benefit - particularly under effective regulation. Where market power is used to restrict output, raise prices above competitive levels, and foreclose rivals without compensating efficiency gains, it is harmful. The policy response - regulation, competition law, public ownership, or structural break-up - matters as much as the market structure itself.

How Did My students Get On?

The strongest answers in Part (b) used the monopoly diagram to anchor the "against" argument (illustrating the deadweight welfare loss triangle explicitly) and then used the natural monopoly and R&D arguments to make a credible case "for" - rather than treating the "for" side as an afterthought. Candidates who only described one side, even with excellent theory, were capped below the 13–15 band. Real-world examples must be more than a company name - the example must be connected to the argument being made.

Question 2 - Inflation and Fiscal Policy

Module 3 · Macroeconomics

Part (a) - Why a high inflation rate can have redistributive effects in the economy [10 marks]

Explain. The question is asking you to identify and explain the different groups who gain and lose from high inflation. A diagram is not required for top marks, though an AD/AS diagram can be used to illustrate the inflation context if helpful.

What You Get Credit For

• Terminology: inflation defined accurately; redistribution - the transfer of real income or wealth between groups within an economy.

• Theory: explanation that inflation redistributes between: lenders and borrowers; rich and poor; workers with stronger and weaker wage bargaining power; those on fixed incomes versus those with flexible incomes.

• Diagram: an AD/AS diagram showing demand-pull or cost-push inflation is acceptable but the mark scheme notes it is not necessary - the marks are awarded for the redistributive mechanisms, not the diagram.

How to Structure Your Answer

1. Define inflation and redistribution. Inflation is a sustained rise in the general price level, measured by a price index such as the CPI. Redistribution refers to the transfer of purchasing power, real income, or wealth between different groups in society. High inflation causes redistribution because its impact is not uniform - different groups are exposed differently to rising prices.

2. Lenders and borrowers. Inflation erodes the real value of money over time. A borrower who took out a loan at a fixed nominal interest rate benefits from inflation: the real value of the debt falls as prices rise. The lender receives repayments in money that buys less than when the loan was made - real interest income falls. If the real interest rate (nominal rate minus inflation) turns negative, lenders effectively pay borrowers in real terms. Mortgage holders benefited significantly during the high-inflation periods of the 1970s in many developed economies; savers with cash deposits lost purchasing power.

3. Those on fixed incomes versus flexible incomes. People on fixed nominal incomes - pensioners receiving a fixed pension, workers on long-term salary contracts, or those receiving some state benefits - find their real purchasing power falling as prices rise. Their nominal income stays the same but buys progressively less. By contrast, workers in unionised industries or those with strong bargaining power may be able to negotiate wage increases that keep pace with or exceed inflation, protecting their real income. This creates a redistribution from the fixed-income group to the flexible-income group.

4. Rich and poor. Lower-income households tend to spend a larger proportion of their income on necessities - food, energy, rent - which often experience above-average price rises during inflationary periods. This makes inflation effectively regressive: it takes a larger proportional bite out of lower incomes. Higher-income households hold more of their wealth in real assets (property, shares, gold) whose nominal values tend to rise with or above inflation, preserving or increasing real wealth. High inflation can therefore widen wealth inequality even if wage inflation is broadly similar across income groups.

5. Workers with different bargaining power. In a high-inflation environment, workers in sectors with strong union representation or high-skill labour markets are better placed to secure wage increases that match or beat inflation - their real wages are protected. Workers in low-skill, non-unionised sectors (hospitality, retail, care work) may see nominal wages rise more slowly than prices, with real wages falling. This widens the income gap between workers even if they nominally receive "pay rises."

How My Students Got On

This question takes all the marks away from students who think "inflation is bad for everyone equally" - the whole point is that it is not. The strongest responses identified four distinct redistributive channels and explained the mechanism clearly for each: who gains, who loses, and why. Adding a real-world example (e.g. negative real interest rates in the UK 2021–23 when CPI peaked at 11.1% but Bank Rate lagged) lifts the answer without needing a full example section - Part (a) does not require real-world examples.

Part (b) - Whether fiscal policy is the most effective way of reducing the rate of inflation [15 marks]

Discuss. The "most effective" framing requires you to assess fiscal policy and then compare it against alternatives. A one-sided answer - even a thorough one on fiscal policy alone - cannot reach the top mark band.

A maximum of 12/15 is awarded if no alternative policies are considered. The question asks whether fiscal policy is the "most effective" - this comparison is essential. For 13+ marks, the synthesis and evaluation must be balanced and at least reference alternative policies.

What You Got Credit For

• Terminology: fiscal policy, inflation (rate of inflation) - used accurately.

• Theory: explanation of how contractionary fiscal policy (higher taxes, reduced government spending) reduces aggregate demand and thereby reduces demand-pull inflation. An AD/AS diagram showing AD shifting left, reducing the price level from P₂ to P₁ (or slowing its rate of rise).

• Arguments for fiscal policy: targets AD directly; automatic stabilisers (progressive taxation, unemployment benefits) act immediately without policy decisions; multiplier effect amplifies the impact; fiscal policy can be targeted at specific sectors or income groups.

• Arguments against / limitations: subject to government decision-making and political constraints; time lags in implementation (recognition lag, decision lag, effect lag); not effective against cost-push inflation (contractionary fiscal policy reduces AD to fight inflation, but this also reduces real GDP - a stagflation problem); danger of fiscal drag; impact on public services and investment.

• Alternative policies: monetary policy (interest rate rises reduce borrowing and spending; central bank independence means faster, less politicised decisions; shorter implementation lag); supply-side policies (address cost-push inflation by reducing production costs and shifting SRAS right - more relevant when inflation is supply-driven); exchange rate appreciation (imported inflation reduced by stronger currency).

• Real-world examples: UK fiscal tightening 2010–2015 alongside Bank of England interest rate policy; post-pandemic inflation response 2021–2023 (Bank of England rate rises vs government energy support - a useful tension to explore); ECB and Federal Reserve rate cycles.

How to Structure Your 15 Mark Answer

1. Introduction. Define fiscal policy (government decisions on taxation and public spending designed to influence aggregate demand). State that it is one of several tools available to reduce inflation, alongside monetary policy and supply-side policies. The appropriate tool depends on the cause of inflation - a key evaluative thread.

2. How fiscal policy reduces inflation. Contractionary fiscal policy - raising income tax, corporation tax, or VAT; cutting government spending - reduces household disposable income and government demand for goods and services. AD falls (or its growth slows). In an AD/AS diagram, the AD curve shifts left, reducing the price level. Draw and explain this: show AD₁→AD₂ leftward, price level falling from P₁ to P₂, real output falling from Y₁ to Y₂. Note that automatic stabilisers (progressive tax takes more in a boom, unemployment benefits rise in recession) provide an immediate, rule-based dampening effect without requiring new policy decisions.

3. Strengths of fiscal policy for inflation. It directly reduces aggregate demand. Automatic stabilisers act without lag. Fiscal policy can be targeted - VAT cuts on specific goods, targeted benefit adjustments - giving a degree of precision monetary policy lacks.

4. Limitations of fiscal policy for inflation. The implementation lag is the major weakness: recognition lag (data takes time to confirm inflation is a problem), decision lag (parliamentary process for budget changes), and effect lag (tax and spending changes take time to flow through to consumer and business behaviour). Fiscal policy is inherently political - governments may be reluctant to raise taxes or cut spending before elections. Most critically: contractionary fiscal policy is poorly suited to cost-push inflation (e.g. a supply shock such as a global energy price spike). Cutting AD reduces inflation but at the cost of lower output and higher unemployment — the economy moves to a worse position on both indicators simultaneously.

5. Monetary policy as an alternative. Interest rate rises by the central bank reduce borrowing and increase the cost of credit → household and business spending falls → AD falls → inflation falls. Key advantages over fiscal policy: central banks (Bank of England, ECB, Federal Reserve) are typically independent of political pressure, allowing faster decisions; interest rate changes can be implemented immediately; the mechanism is automatic. The post-pandemic inflation of 2021–23 saw central banks raise rates aggressively - the Bank of England moved from 0.1% to 5.25% - while governments' fiscal responses were slower and often expansionary (energy price caps added to rather than reduced demand). This real-world episode illustrates the comparative advantage of monetary policy in speed and flexibility.

6. Supply-side policies for cost-push inflation. When inflation is driven by supply constraints rather than excess demand - a pandemic, a war disrupting energy markets, a logistics collapse - demand-side policies (both fiscal and monetary) address the symptom (rising prices) at the cost of lower output. Supply-side policies that address the underlying cost pressures (investment in energy independence, skills training, infrastructure) are more appropriate in the long run. However, they take years to produce effects and are poorly suited to an immediate inflation crisis.

7. Conclusion. Fiscal policy is a credible tool for reducing demand-pull inflation, particularly through automatic stabilisers that respond without political delay. However, it is not the most effective tool in most circumstances: it operates with longer implementation lags than monetary policy, is subject to political constraints, and is poorly suited to cost-push inflation. Monetary policy - operated by an independent central bank - typically offers greater speed and flexibility. The most effective approach to inflation combines the two: monetary policy for immediate demand management, fiscal policy to avoid procyclicality, and supply-side reform for structural cost pressures.

Where Did Some Of My students Lose Marks?

The most common error on this question was failing to distinguish between demand-pull and cost-push inflation. Fiscal policy works well against demand-pull (it cuts AD directly) but poorly against cost-push (cutting AD creates a recession without fixing the supply problem). Candidates who made this distinction clearly - and used it to identify when monetary or supply-side policy is preferable -consistently reached the 13–15 band. Those who described fiscal policy thoroughly without comparing alternatives were capped at 12.

Question 3 - Primary Sector Dependence and Trade Policy

Module 4 Global trade & Development Economics

Part (a) - Why dependence on primary sector production is often a barrier to economic growth and economic development [10 marks]

Explain. The question asks about both economic growth and economic development - even though these concepts are related they are distinct concepts and both must be addressed to avoid the hard mark cap.

What This Question Required.

A maximum of 6/10 if only economic growth OR only economic development are addressed. Both must be covered.

What You Got Credit For

• Terminology: primary sector, economic growth, economic development - all defined accurately. Economic growth = sustained increase in real GDP or real GDP per capita. Economic development = improvement in living standards, human capital, and wellbeing more broadly (HDI, literacy, health indicators).

• Theory: dependence on primary products is a barrier because of price volatility (inelastic supply and demand for primary commodities → small shifts in supply or demand produce large price swings → unstable export earnings); declining terms of trade (Prebisch-Singer hypothesis - primary product prices tend to fall relative to manufactured goods over time); low income elasticity of demand for primary goods; vulnerability to supply-side shocks (weather, disease, resource depletion).

• Diagram: a supply and demand diagram for a primary product market illustrating price volatility - show how an inelastic supply curve means a small demand shift produces a large price change. A cobweb diagram may also be credited.

How to Structure Your Response

1. Define key terms. The primary sector includes agriculture, fishing, mining, and the extraction of raw materials. Economic growth is a sustained increase in real GDP, representing an expansion of productive capacity. Economic development is a broader concept encompassing improvements in human welfare - including health, education, income distribution, and political freedoms - measured by indicators such as the HDI.

2. Price volatility - the core mechanism. Primary commodities (oil, copper, cocoa, wheat) are characterised by price inelastic supply in the short run (production cannot rapidly adjust to price signals - crops take a season to grow, mines take years to develop) and price inelastic demand (they are necessities with few short-run substitutes). This combination means that small shifts in supply or demand produce disproportionately large price changes. A drought that cuts cocoa output by 10% may cut the price by far more than 10%, wiping out producer incomes. Conversely, a bumper harvest drives prices down when producers most need revenue. Draw and explain this: a steep supply curve and a steep demand curve - a small leftward shift in supply produces a large upward price movement, illustrating income volatility for producers.

3. Barrier to economic growth. Volatile export earnings from primary commodities make it difficult for governments to plan and sustain investment. When commodity prices fall, government revenue (often dependent on export taxes or royalties) falls sharply - infrastructure projects, education spending, and public investment are cut. The resulting stop-start growth pattern prevents the accumulation of physical and human capital necessary for sustained GDP growth. Furthermore, the Prebisch-Singer hypothesis argues that primary product prices trend downward relative to manufactured goods over the long run - countries that remain dependent on primary exports face a secular decline in their terms of trade, meaning they must export more and more to import the same quantity of manufactured goods. This drains the surplus needed to fund structural transformation of the economy.

4. Barrier to economic development. Primary sector employment is typically low-skill, low-wage, and precarious - particularly in smallholder agriculture and artisanal mining. Income generated does not reliably translate into improved health outcomes, education investment, or poverty reduction. The resource curse (Dutch Disease) compounds this: commodity booms can cause exchange rate appreciation that makes other export sectors uncompetitive, hollowing out manufacturing and diversified agriculture - the very sectors that typically drive productivity growth and wages for the broad workforce. Dependence on a single commodity also makes economies highly vulnerable to external shocks, which fall disproportionately on the poorest workers - setting back human development indices even after periods of growth.

5. Draw and explain the diagram. Supply and demand for a primary commodity: both S and D steep (inelastic). Show a leftward supply shift (harvest failure, drought) - the price rise is large relative to the quantity change. Annotate: "inelastic supply and demand amplify price volatility → unstable export earnings → barrier to sustained growth and development investment."

Where Did Some of My Students Lose Marks?

Candidates who addressed both growth and development as distinct concepts, not as synonyms were rewarded. A strong answer explains the growth barrier (volatile export earnings prevent capital accumulation, declining terms of trade reduce the surplus for investment) and then separately addresses the development barrier (primary employment is low-quality and precarious, commodity dependence traps workers in low-productivity activities, and the resource curse can undermine broader economic diversification). Candidates who wrote only about GDP instability without considering human development indicators were capped at 6/10.

Part (b) - Whether trade protection is more effective than free trade to promote employment and economic growth [15 marks]

Command term: Discuss. The "more effective than" framing requires genuine comparison - arguments for trade protection and arguments for free trade must appear. The question specifies two objectives (employment and economic growth) and both must be addressed for full marks.

A maximum of 12/15 if the response does not address both employment and economic growth. For 13+ marks, both objectives must be discussed in relation to both trade protection and free trade, with balanced evaluation.

What You Got Credit For

• Terminology: trade protection, free trade, employment, economic growth - all used accurately.

• Diagram: a tariff or quota diagram showing the impact of protection (price rises domestically, domestic output rises, imports fall, consumer surplus falls, government revenue from tariff).

• Arguments for trade protection: protecting domestic employment from cheaper foreign competition; infant industry protection (allowing new industries to develop until they achieve scale economies before competing internationally); correcting a trade deficit and improving the balance of payments; protecting against unfair trade (dumping); strategic industries and self-sufficiency; national security arguments.

• Arguments for free trade: comparative advantage → specialisation → higher total output and economic growth globally; imports create pressure for domestic efficiency → productivity growth; access to larger markets → economies of scale → lower costs; lower prices for consumers → higher real incomes; trade creates jobs in export-oriented sectors even as it displaces jobs in import-competing sectors.

• Evaluation: trade protection can protect specific jobs in the short run but tends to reduce overall efficiency and growth; retaliatory tariffs from trading partners can reduce export employment more than protection saves import-competing jobs; free trade creates displacement in some sectors even as it generates aggregate growth; the distributional effects of both policies differ (trade protection benefits protected workers but raises prices for all consumers; free trade benefits consumers broadly but concentrates adjustment costs on workers in declining industries).

• Real-world examples: US tariffs on steel and aluminium (2018 and 2025); US-China trade war; infant industry protection in South Korea (electronics, shipbuilding); EU Common Agricultural Policy; WTO trade liberalisation and growth in East Asia; Brexit trade disruption effects on UK

How to Structure Your 15 Mark Answer

1. Introduction. Define trade protection (government policies that restrict imports or support domestic producers, including tariffs, quotas, subsidies, and administrative barriers). Define free trade (trade without such restrictions, based on market-determined comparative advantage). State that both policies have genuine effects on employment and growth, but the net effect is contested and context-dependent.

2. How trade protection can promote employment and growth.

   • Short-run employment protection: A tariff on imported steel raises the domestic price, making domestic steel more competitive. Domestic steel producers expand output and hire more workers. Jobs that would otherwise be lost to cheaper foreign competition are retained. Draw and explain: the tariff diagram showing domestic output rising from Q₁ to Q₂ as price rises from P_world to P_tariff.

   • Infant industry protection: A new domestic industry cannot yet achieve the scale economies of established foreign rivals. Temporary protection allows it to grow, reduce unit costs, and eventually compete internationally without ongoing support. South Korea's protection of its electronics and shipbuilding sectors in the 1960s–1980s is the most frequently cited example - industries that later became globally competitive.

   • Trade deficit correction: Reducing imports improves the trade balance, which directly contributes to GDP (net exports are a component of AD). If the current account deficit was previously acting as a drag on domestic employment, protection may sustain employment in the short run.

   • Strategic industries: Protection of sectors deemed essential for national security (defence, food supply, energy) may justify short-run efficiency costs for long-run security - a non-economic objective with real employment implications.

3. How free trade promotes employment and growth.

   • Comparative advantage and specialisation: Free trade allows countries to specialise in the production of goods in which they have a comparative advantage - producing at lower opportunity cost than their trading partners. Specialisation raises total global output. Countries import goods they produce less efficiently and export those they produce more efficiently - net employment may shift sector by sector, but total output and income rise. This is the fundamental case for free trade as a growth driver.

   • Economies of scale: Access to larger international markets allows domestic firms to expand production beyond what the domestic market could sustain, driving unit costs down. Export-oriented growth strategies (East Asian "tigers" - South Korea, Taiwan, Singapore, Hong Kong) demonstrate that outward-oriented economies consistently achieved higher growth rates than inward-looking protected economies.

   • Efficiency and innovation: Exposure to international competition forces domestic firms to improve productivity, reduce waste, and innovate. Protected industries, by contrast, face little pressure to improve - the domestic monopoly or oligopoly can survive without efficiency gains. The long-run growth effect of free trade is therefore larger than its immediate employment effect.

   • Consumer real incomes: Lower prices from import competition increase real purchasing power for consumers, raising living standards without requiring GDP growth. This is a distributional growth benefit that trade protection eliminates.

4. Evaluation - limitations of trade protection. The short-run employment gains from protection are often concentrated in one sector and clearly visible; the costs are dispersed across all consumers and are difficult to account for - this is typical political economy distortion. Retaliation by trading partners is a serious risk: US steel tariffs in 2018 saved an estimated 1,700 steel jobs while costs to steel-using industries (autos, construction) and through retaliatory tariffs on US agricultural exports cost far more jobs. Protection also tends to lock in inefficiency - the infant industry argument requires the protection to be temporary, but in practice political pressure from the protected sector makes the removal of this policy very difficult. Finally, protection does not address the underlying causes of unemployment if those are cyclical or structural rather than caused by foreign competition.

5. Evaluation - limitations of free trade. Free trade creates winners and losers. Workers in import-competing industries face genuine displacement and retraining costs that market forces do not cater for. The adjustment is not instantaneous - industries and workers may suffer prolonged hardship before the economy re-allocates resources to more competitive sectors. Free trade may also create dependence on foreign suppliers for essential goods (demonstrated vividly during COVID-19 supply chain disruptions), raising national security concerns. Trade liberalisation benefits are distributed unevenly - they flow primarily to capital owners and high-skill workers in export sectors, while low-skill import-competing workers bear the adjustment costs.

6. Conclusion. Trade protection can promote short-run employment in targeted sectors, but evidence strongly favours free trade as a more efficient driver of long-run economic growth. The most successful economies (East Asian growth miracles, Germany's export-led model) have used openness to trade as a central growth strategy, with targeted industrial policy rather than blanket protection. Trade protection is at best a temporary second-best policy for specific, justified purposes (infant industries, national security). As a general strategy to promote employment and growth, trade protection is inferior to free trade when free trade is supported by domestic policies to manage the distributional consequences of trade-induced adjustments.

Where Did Some Of My students Lose Marks?

Both employment and economic growth must appear in the evaluation of both trade protection and free trade. Many candidates wrote strong answers on employment but mentioned growth only superficially, or vice versa. The mark scheme requires both to be addressed in context. The strongest answers used a specific real-world example for each side - for instance, the US 2018 steel tariffs (protection, short-run jobs claim, net negative result) against South Korea's export-led growth model (free trade with strategic industrial policy, long-run growth success) - and drew a clear conclusion at the end of the essay based on which approach is more effective and under what conditions.

Hard Mark Caps - November 2025 HL Paper 1 at a glance

• Q2(b): Maximum 12/15 if no alternative policies to fiscal policy are considered.

• Q3(a): Maximum 6/10 if only economic growth OR only economic development is addressed.

• Q3(b): Maximum 12/15 if both employment AND economic growth are not addressed in relation to both trade protection and free trade.

A Quick Look At The Exam

• Paper: Paper 1 HL

• Date: November 2025

• Duration: 1h 15m

• Total marks: 25

• Structure: Choose 1 question out of 3

• Part (a) 10 marks

• Part (b) 15 marks

Frequently Asked Questions About November 2025 HL Paper 1

These were some of the questions my students asked about the May 2025 HL exam.

What were the three questions on the IB Economics HL Paper 1 November 2025?

The November 2025 HL Paper 1 covered three topic areas: (1) Monopoly and Market Power - explaining why a monopoly earns abnormal profits in both the short run and long run, then discussing whether firms with significant market power are desirable; (2) Inflation and Fiscal Policy - explaining the redistributive effects of high inflation, then discussing whether fiscal policy is the most effective way to reduce inflation; (3) Primary Sector Dependence and Trade Policy - explaining why dependence on primary sector production is a barrier to economic growth and development, then discussing whether trade protection is more effective than free trade in promoting employment and economic growth.

Why can a monopoly earn abnormal profit in the long run when other firms cannot?

In a competitive market, abnormal profits attract new entrants whose additional supply drives prices down to the point where only normal profit remains. A monopoly can sustain abnormal profit in the long run because barriers to entry prevent new firms from entering the market. These barriers include legal protections such as patents and licences, economies of scale that make the cost of entry prohibitively high (natural monopoly), control of essential resources, established brand loyalty, and incumbent firms using limit pricing to make entry unattractive. Without these barriers, the monopoly profit would be competed away just as in any other market structure.

What is the redistributive effect of inflation on borrowers and lenders?

Inflation erodes the real value of money over time. Borrowers who took out loans at fixed nominal interest rates benefit because the real value of their debt falls as the price level rises - they repay in money that buys less than when they borrowed. Lenders lose because the repayments they receive have lower real purchasing power. If inflation exceeds the nominal interest rate, the real interest rate turns negative - lenders are effectively subsidising borrowers. This redistribution from creditors to debtors was a significant feature of the high inflation periods in many economies during 2021–2023.

Why is fiscal policy not always the most effective tool to reduce inflation?

Fiscal policy (raising taxes or cutting government spending to reduce aggregate demand) can effectively reduce demand-pull inflation. However, it operates with significant time lags - recognition, decision, and effect lags mean that by the time the policy takes effect, economic conditions may have changed. Fiscal decisions are also subject to political constraints. Most importantly, fiscal policy is poorly suited to cost-push inflation: cutting aggregate demand to fight supply-driven price rises reduces output and raises unemployment simultaneously, worsening the economy without fixing the underlying supply problem. Monetary policy - interest rate changes implemented by an independent central bank - typically acts faster and with less political interference, making it the preferred tool in most inflation-fighting scenarios.

Why is dependence on primary commodities a barrier to economic development?

Primary commodity markets are characterised by price inelastic supply and demand, which means small shifts in production or global demand cause large price swings. This creates volatile export earnings for commodity-dependent economies, making sustained investment in infrastructure, education, and health difficult to plan and maintain. The Prebisch-Singer hypothesis also suggests that primary product prices tend to decline relative to manufactured goods over the long run, reducing the terms of trade for commodity exporters and draining the surplus needed to fund economic transformation. Additionally, primary sector employment tends to be low-skill and low-wage, limiting the improvement in human development indicators - health, education, and income distribution - that define economic development beyond mere GDP growth.

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