IB Economics Diagrams
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The government will increase MPC to
match MSC.
Negative Externalities
Effects of indirect taxes on consumer
and producer surplus
Market Demand
Movement on curve vs. shift of curve (de-
mand/supply same concept)
Market supply
Market equilibrium
Consumer/producer surplus in competi-
tive market
How does a change in demand single
price change?
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IB Economics Diagrams
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Inelastic PEDcurve
Elastic PED curve
Unit elasticity (PED=1)
As you get towards the right of the curve
for example, the change in percentage
demand is much lower than the percent-
age change in price. (E.g.) Price goes
from 0.1-0.2=50% increase. Qd goes
from 50-49 = approx.. 0.02 decrease.
Varying PED along a demand curve This gives inelastic value like on curve.
How government revenue is effect with
different PED
YED of inferior goods, inelastic normal
goods and elastic normal goods
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Inelastic supply
Elastic supply
Price fluctuations are greater for primary
good vs. manufactured goods (demand
side)
Price fluctuations are greater for prima-
ry good vs. manufactured goods (supply
side)
Specific tax/ ad valorem tax + govern-
ment revenue
Impact of subsidy
Price ceiling (maximum price) and price
floor (minimum price)
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Impact of a price ceiling (perfect compe-
tition)
Welfare impact on excess supply
More labour available than people de-
manding it means unemployment
Minimum wage in labour market
Welfare impacts due to minimum wage
Effect of subsidies on consumer/produc-
er surplus
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Allocative efficiency
Welfare loss is also measured by the
triangle created by Qfm (free market)
Welfare loss
Realistically, tax will not completely cover
the tax gap.
Tax required to make MSC and MPC is
the distance between MSC and MPC.
Economies of scale and diseconomies of
scale with LRATC curve
Summary of perfectly competitive firm in
short run
MC>ATC,AVC
Economic profit in short run
MC=ATC
Break even price (normal profit)
ATC>MC>AVC
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IB Economics Diagrams
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Perfectly competitiveness producing at a
loss but still producing
MC=AVC
Perfectly competitiveness shut down
price
AR>ATC
Profit in monopoly
Loss in monopoly
Business cycle
Aggregate demand/supply curve
Deflationary, Inflationary, Full Employ-
ment (Neo-classical)
Deflationary, Inflationary, Full Employ-
ment (Keynesian)
Increasing potential growth (Neo-classi-
cal/Keynesian)
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IB Economics Diagrams
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Effects of minimum wages
Lorenz curve and income equality
Partial Complete crowding out (short
run)
Effects of tariffs
Effects of quotas
Poverty Trap
7/7
