Contents: 7 sections
What Paper 3 asks of you
Paper 3 is sat by Higher Level students only. It is the paper that tests the HL extension material and, unlike Papers 1 and 2, its questions are compulsory, there is no choice.
It has two distinct halves, and they need different preparation:
- Quantitative questions. Calculations drawn from the HL syllabus, each usually followed by a short explanation or a diagram.
- A policy response. You are given a scenario, asked to analyse it, and then asked to recommend a policy and justify the recommendation.
Students who prepare for Paper 3 as "the maths paper" are half-prepared. The policy half rewards judgement, and it is where the marks are hardest to recover.
The quantitative half
The HL calculations are a finite, learnable list. There is no reason to lose marks here, and yet most Paper 3 marks are lost on presentation rather than on the economics.
Rules that protect the marks:
- Write the formula before substituting. If the arithmetic goes wrong, the method still earns credit. If there is no formula on the page, a wrong number earns nothing.
- Show every step. Examiners cannot award working they cannot see.
- State units and signs. A negative YED means an inferior good; dropping the sign discards the interpretation.
- Round sensibly and say what you rounded to.
- Interpret the result. Almost every calculation is followed by a question asking what it means. "PES is 0.6, so supply is price-inelastic, producers cannot respond quickly, so a demand rise mostly raises price rather than quantity."
The calculation areas to have fluent:
| Area | What you must be able to do |
|---|---|
| Elasticities | Calculate PED, PES, YED and XED, and interpret the sign and size. |
| Costs and revenue | Total, average and marginal cost and revenue; profit-maximising output. |
| Market equilibrium | Solve linear demand and supply equations; find equilibrium price and quantity. |
| Indirect taxes and subsidies | Government revenue or cost, consumer and producer burden, welfare loss. |
| National income | Real versus nominal values, index numbers, growth rates. |
| The multiplier | Calculate from MPC, MPS, MPT and MPM, and apply it to a change in injections. |
| Macroeconomic indicators | Unemployment rate, price indices, real income conversions. |
Practise these until they are automatic. Under time pressure, fluency in the routine calculations is what buys you the thinking time for the policy question.
The policy half
This is the part that distinguishes Paper 3 from every other paper you sit. You are not asked to explain a policy. You are asked to choose one and defend the choice.
A recommendation that earns full credit does five things:
1. Diagnose the problem precisely. Name the market failure, the macroeconomic condition, or the constraint. "Unemployment is high" is not a diagnosis. "Unemployment is structural, since the text describes obsolete skills in a declining sector" is.
The diagnosis governs everything after it, a policy that treats cyclical unemployment will not fix structural unemployment, and a recommendation that misdiagnoses cannot be rescued by good analysis.
2. Set out the realistic options. Two or three genuine candidates, not one obvious answer and two straw men. Each stated as a policy, not a wish: "a targeted retraining subsidy", not "improve education".
3. Analyse the leading option with a full chain and a diagram. Cause → mechanism → consequence, exactly as on the other papers. Show the intended effect on the diagram and label the change.
4. Weigh the trade-offs honestly. Cost and how it is financed; time lags; who bears the burden; unintended consequences; whether the government has the information and capacity to implement it. A recommendation that acknowledges no downside reads as advocacy rather than analysis.
5. Recommend, with the condition attached. State which policy you choose, why it beats the alternatives for this specific scenario, and under what circumstances your answer would change:
A targeted retraining subsidy is preferable here because the unemployment described is structural, so demand-side stimulus would raise inflation without re-employing these workers. If the data showed a demand shortfall instead, the ranking would reverse.
That last sentence, the condition under which the judgement flips, is the clearest signal of top-band thinking.
What examiners reward
| Dimension | What a strong answer shows |
|---|---|
| Accuracy | Correct calculations, with formula and working shown. |
| Interpretation | Every number explained in economic terms, not left bare. |
| Diagrams | Fully labelled, correct for the HL model being tested, referred to in the prose. |
| Diagnosis | The problem correctly identified before any policy is proposed. |
| Justification | A recommendation defended against alternatives, with conditions stated. |
Common ways students lose marks
- Giving a bare number with no formula, no working and no interpretation.
- Recommending a policy without first diagnosing the problem.
- Comparing one real option against two implausible ones.
- Ignoring cost, financing and time lags entirely.
- Writing an even-handed discussion and never actually recommending anything. The question asks for a recommendation; not making one forfeits the marks for it.
- Spending so long on the calculations that the policy question, the harder and better-rewarded half, is rushed.
How to prepare
Split your revision. Drill the calculations until they are mechanical, because that is a pure practice problem with a finite syllabus. Then spend the larger share of your time on policy scenarios, which reward reasoning you cannot memorise.
For each HL topic, be able to answer: what problem does this diagnose, which policies address it, what does each cost, and under what conditions does the ranking change?
Practise this
The Policy Lab in the portal is built for the second half of this paper: it presents a scenario, makes you diagnose it, weigh the realistic options and commit to a recommendation with a condition attached. It is Higher Level only, in line with the paper itself.