How to Write a 10-Mark Economics Answer — IB Economics SL

① Define key terms

Common access resources (also called common pool resources) are resources that are rivalrous — one person's use reduces availability for others — but non-excludable, meaning no one can be prevented from using them. Examples include ocean fish stocks, forests, and clean air.

② Define the second key term

Market failure occurs when the free market fails to allocate resources efficiently, resulting in a loss of economic welfare. In this case, the market failure arises because common access resources have no defined ownership and therefore no price mechanism to signal scarcity.

③ Explain the incentive problem

Because there is no owner to charge a price, individual users have an incentive to maximise their own consumption. A fishing company will continue to increase its catch because the private marginal cost (MPC) of fishing does not include the cost imposed on other fishers or on the ecosystem.

④ Identify the externality

This creates a negative externality of production: the marginal social cost (MSC) of extracting the resource exceeds the MPC. The difference between MSC and MPC is the external cost — the damage to the ecosystem and to other users that the individual firm does not pay for.

⑤ Introduce and explain the diagram

This can be shown on the diagram below. The market produces at Q_m where MPC = MSB (demand), because firms only consider their private costs. However, the socially optimal output is Q_opt where MSC = MSB. At Q_opt, all costs — including external costs — are accounted for.

⑥ Explain the welfare loss from the diagram

The resource is overconsumed by Q_m − Q_opt. For every unit between Q_opt and Q_m, the MSC exceeds the MSB, meaning society pays more than it benefits. The shaded triangle represents the deadweight loss (DWL) — a permanent loss of economic welfare that cannot be recovered.

⑦ Real-world example

A clear example is overfishing in the North Atlantic. Because ocean fish are a common access resource with no single owner, fishing fleets competed to catch as much as possible. By the 1990s, cod populations in the Grand Banks collapsed to less than 1% of historical levels, devastating both the ecosystem and the fishing industry itself.

⑧ Explain the "tragedy of the commons"

This pattern is known as the tragedy of the commons: each user acts rationally in their own self-interest, but collectively the resource is degraded or permanently depleted. The market failure exists because there is no price signal to reflect scarcity or environmental damage.

⑨ Conclude — why this is market failure

Therefore, common access resources lead to market failure because the absence of ownership and prices creates a divergence between private costs and social costs. The result is allocative inefficiency — the resource is consumed beyond the socially optimal level — and, without government intervention such as quotas, tradable permits, or taxation, the resource will continue to be overused and potentially exhausted.