Price Elasticity of Demand (PED)
Negative sign for normal goods; magnitude indicates elasticity.
PED = (%ΔQ_d) / (%ΔP) IB Diploma Programme 2026
📊 IBDP Economics Formula Sheet
Micro + macro indicators and HL development equations for quick referencing across Paper 1 essays and Paper 2/3 data sets.
Elasticities Multiplier HL Development
Connect Diagrams to Calculations
Use these expressions to justify elasticity statements, link AD/AS shifts to macro targets, and evaluate policy outcomes quantitatively.
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Micro + macro pairings
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Exchange & BOP references
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Policy evaluation cues
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HL development metrics
Micro Fundamentals (SL Core)
Elasticity equations and cost/revenue identities for Paper 1 data response and Paper 2 calculations.
Cross & Income Elasticities
XED
XED = (%ΔQ_x) / (%ΔP_y) Positive = substitutes, negative = complements.
YED
YED = (%ΔQ_d) / (%ΔY) Positive = normal, negative = inferior.
Revenue Relationships
TR
TR = P × Q AR
AR = TR / Q MR
MR = ΔTR / ΔQ Costs
Short-run averages plus marginal cost.
ATC
ATC = TC / Q AVC
AVC = TVC / Q AFC
AFC = TFC / Q MC
MC = ΔTC / ΔQ Topic Focus
Elasticity Storytelling
- Mention whether demand is elastic or inelastic before linking to revenue changes.
- Quote determinant (time, substitutes, income share) for evaluation marks.
Cost & Revenue Curves
- Specify MC = MR as profit maximisation plus note rising MC condition.
- Clarify shut-down decisions with AR vs. AVC comparisons.
Intervention & Externalities
Quantify taxes, subsidies, and external costs to support welfare analysis.
Tax Incidence
Difference between consumer and producer price after tax.
Incidence share = (ΔP consumers or producers) × Q_tax Subsidy Payments
Government cost = subsidy per unit × Q_subsidised Social vs. Private Costs/Benefits
MSC
MSC = MPC + MEC MSB
MSB = MPB + MEB Topic Focus
Policy Evaluation
- Compare welfare loss/gain regions numerically when feasible.
- Discuss opportunity cost/budget implications for subsidies or price supports.
National Income & AD/AS (SL Core)
Aggregate demand identity, multiplier, GDP growth, inflation, and unemployment metrics.
Aggregate Demand
Identify which component shifts when analysing policy.
AD = C + I + G + (X − M) Multiplier
k
k = 1 / (1 − MPC) Income change
ΔY = k × Initial injection GDP & Growth
GDP per capita
GDP_pc = Real GDP / Population Growth rate
Growth (%) = ((Real GDP_t − Real GDP_{t−1}) / Real GDP_{t−1}) × 100 Inflation & Unemployment
Inflation
Inflation (%) = ((CPI_t − CPI_{t−1}) / CPI_{t−1}) × 100 Unemployment
Unemployment (%) = (Number unemployed / Labour force) × 100 Topic Focus
Multiplier Commentary
- Explain leakages (savings, taxes, imports) when discussing why k < initial injection.
- Relate resulting ΔY to employment and inflation targets.
AD/AS Reasoning
- Tie each shift to demand-side vs. supply-side policies for evaluation.
- Mention spare capacity vs. full employment when inferring inflationary pressure.
External Balance & Exchange Rates
Balance of payments components, terms of trade, and appreciation/depreciation impacts.
Current Account
Current Account = (X − M) + Net primary income + Net secondary income Terms of Trade
ToT = (Export price index / Import price index) × 100 Exchange Rate Movements
Express as units of domestic currency per unit of foreign currency.
Appreciation ↑ value of domestic currency; depreciation ↓ value.
Topic Focus
BOP Commentary
- State whether deficits are financed via capital inflows or reserve use.
- Discuss sustainability and potential policy responses (expenditure switching/reducing).
Terms of Trade
- Explain link between ToT shifts and ability to import capital goods.
- Mention how elasticity of exports/imports affects impact on current account.
Higher Level Extensions
Used heavily in HL Paper 3 data sets.
Marshall-Lerner condition, Phillips Curve expressions, Lorenz/Gini metrics, and debt ratios.
Marshall-Lerner Condition
For a depreciation to improve current account, |ε_x| + |ε_m| > 1.
|ε_x| + |ε_m| > 1 Phillips Curve (expectations-augmented)
Shows trade-off between inflation and unemployment in short run.
π = π^e − β(u − u_n) Lorenz & Gini
Use Lorenz curve areas to compute Gini coefficient.
Gini = A / (A + B) = 1 − 2 × (area under Lorenz curve) Debt Ratios
Debt-to-GDP
Debt ratio = (Public debt / GDP) × 100 Debt-service
Debt-service ratio = (Debt repayments / Export earnings) × 100 Topic Focus
Exchange Rate Evaluation
- Discuss J-curve effects when depreciation initially worsens the current account.
- Reference elasticity values to explain whether condition holds in short vs. long run.
Phillips Curve & Expectations
- Clarify whether movement is along the curve or shift due to supply-side reforms.
- Tie inflation expectations to credibility of monetary policy.
Development Indicators
- Compare income and wealth inequality when interpreting Gini outcomes.
- Use debt ratios to comment on sustainability and potential IMF/World Bank involvement.
How to Use This Formula Sheet
Boost your Cambridge exam confidence with these proven study strategies from our tutoring experts.
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State Formula Then Apply
Write the equation before substituting numbers/percentages to show method on Paper 2/3.
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Link Values to Evaluation
After calculating multiplier or elasticity, explain what it implies for policy effectiveness.
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Use Real Economies
Attach country examples (e.g., Singapore, UK) when discussing BOP or development metrics to secure application marks.
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Content aligned with the 2020 IB Economics syllabus (first assessment 2022) covering SL and HL components.
Always specify the time period and units (%, currency) when quoting macroeconomic indicators.