Download of Graphs

Educating Young People Who Will Be
Significantly Different!
Contents

Teacher Notes

Circular Flow Models

Demand and Supply Models

Production Possibility Curves

Lorenz Curves

Aggregate Supply and Aggregate Demand Graphs

Firm Graphs

Social Marginal Benefit and Social Marginal Cost
Teacher Notes –
ECO 06/2/1
This Economics resource is intended to assist teachers by saving them time in processing graphs, and
ensuring that they have access to an accurate graph to suit a range of situations. It contains templates
for 90 graphs relating to the topics listed above, and is suitable for all levels of Economics. Teachers will
be able to use the graphs as is, or adjust them to suit specific teaching requirements.
Copyright Statement
All rights reserved. No part of publications which have the copyright statement may be reproduced, stored
in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying,
recording or otherwise, without prior permission of the copyright owner – NZCETA, PO Box 95, Oamaru.
Permission is given for this resource material to be reproduced by the purchaser for their own classroom
use only.
If any person copies any copyright materials without permission of NZCETA, then that person has
infringed copyright, has broken the law and may be subject to Court proceedings.
Index of Graphs
 Circular Flow models
Circular flow model – simple
Circular flow model – 2 sector
Circular flow model – 3 sector (closed economy)
Circular flow model – 4 sector (open economy)
Circular flow model – simple with markets
Circular flow model – 4 sector with markets
 Demand and supply models
1. Demand curves
Demand curve
Decrease in demand
Increase in demand
Increase in quantity demanded
Decrease in quantity demanded
2. Supply curves
Supply curve
Decrease in supply
Increase in supply
Increase in quantity supplied
Decrease in quantity supplied
3. Changes in market equilibrium
Market equilibrium
Path to equilibrium from an excess supply
Path to equilibrium from an excess demand
Market equilibrium after an increase in supply
Market equilibrium after a decrease in supply
Market equilibrium after an increase in demand
Market equilibrium after a decrease in demand
4. Labour market supply and demand
Labour market equilibrium
Labour market disequilibrium – excess supply = involuntary unemployment
Labour market equilibrium after an increase in demand
Labour market equilibrium after a decrease in demand
Labour market equilibrium after an increase in supply
Labour market equilibrium after a decrease in supply
5. Forex market supply and demand
Foreign exchange market
Increased demand in forex market  an appreciation
Decreased demand in forex market  a depreciation
Decreased supply in forex market an appreciation
Increased supply in forex market a depreciation
Effect of exchange rate changes on imports
Effect of exchange rate changes on exports
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ECO 06/2/1
6. International trade supply and demand
2 Country Supply and Demand
Price-taking importer
Price-taking exporter
7. Sales taxes and subsidies and supply and demand
Sales taxes
Subsidies
 Production possibility curves
Production possibility diagram
PPC showing an increase in production from unemployment to full employment
PPC showing an unemployment or under-utilisation of resources/technology
PPC showing an increase in productive capacity
PPC showing a decrease in productive capacity
PPC showing a resource / technology change increasing productive capacity of
ONE good
PPC showing a resource / technology change decreasing productive capacity of
ONE good
PPC showing basis for trade
 Lorenz curves
Lorenz curve
Lorenz curve showing increased inequality
Lorenz curve showing decreased inequality
Lorenz curve and gini coefficient
Equity efficiency trade off
 Aggregate Supply and Aggregate Demand Graphs
Aggregate Demand
Aggregate Supply
AS-AD equilibrium
Inflationary gap
Deflationary (Recessionary) gap
Demand pull inflation
Cost push inflation
AS-AD showing a TIGHT monetary policy (ie increasing the OCR)
AS – AD showing a CONTRACTIONARY fiscal policy (eg running an operating
surplus)
AS – AD showing the effect of a depreciating $NZ
 Firm Graphs
1. Perfect competition
Long run equilibrium for a Perfectly competitive firm
Perfectly competitive firm making SUPER-NORMAL profit
Perfectly competitive firm making SUB-NORMAL profit
Perfectly competitive firm making NORMAL profit
Moving from SR super-normal profit to LR equilibrium
Moving from SR sub-normal profit to LR equilibrium
Breakeven and shut down points
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ECO 06/2/1
2. Monopoly
Profit maximising output level for a monopoly
Justifying the profit maximisation position
Monopoly making super-normal profit
Monopoly making sub-normal profit
Monopoly making normal profit
Natural monopoly
 Social marginal benefit and social marginal cost
Social equilibrium
Negative externality of production
Positive externality of production
Negative externality of consumption
Positive externality of consumption
Market for a Public good
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ECO 06/2/1
Circular Flow models
Circular flow model – simple
Circular flow model – 2 sector
C=
Consumption
FINANCIAL SECTOR
I=
All banks + other financial
institutions
(loans for)
investment
G+S
C=
S=
Consumption
Saving
HOUSEHOLDS
All consumers and
resource owners
PRODUCERS
All firms
HOUSEHOLDS
PRODUCERS
All consumers and
resource owners
All firms
Factors of
production
Y=
Income
Y=
Income
Real flows
Money flows
Money flows
Circular flow model – 3 sector (closed economy)
Circular flow model – 4 sector (open economy)
FINANCIAL
SECTOR
All banks + other
financial institutions
I=
(loans for)
Investment
C=
Consumption
S=
FINANCIAL
SECTOR
All banks + other
financial institutions
I=
(loans for)
Investment
Saving
HOUSEHOLDS
All consumers and
resource owners
X=
M=
IT =
Indirect taxes
PRODUCERS
All firms
HOUSEHOLDS
All consumers and
resource owners
PRODUCERS
All firms
IT =
Indirect taxes
G=
Govt spending
GOVERNMENT
SECTOR
All central + local
govt organisations
T=
Direct taxes
Tr =
Transfers
T=
Direct taxes
Tr =
Transfers
Y=
Income
Money flows
Money flows
Y=
Income
Circular flow model – simple with markets
G OODS + S ERVICES
M ARKET
sets the price of G+S
Circular flow model – 4 sector with markets
F INANCIAL M ARKET
-sets the interest
rate
I = (loans for)
investment
G+S
FOREIGN EXCHANGE M ARKET
- sets the exchange rate
S = Saving
HOUSEHOLDS
All consumers and
resource owners
Export
receipts
Import
payments
G=
Govt spending
GOVERNMENT
SECTOR
All central + local
govt organisations
C=
Consumption
OVERSEAS
SECTOR
Firms + consumers
overseas
C=
Consumption
S=
Saving
PRODUCERS
All firms
consumer
expenditure= C
HOUSEHOLDS
All consumers and
resource owners
G OODS + SERVICES
M ARKET
- sets the price of
G+S
G + S=
Goods +
services
PRODUCERS
All firms
It= Indirect
tax
X = export
receipts
M = import
payments
OVERSEAS
SECTOR
G = government
spending
Factors of
production
R ESOURCE M ARKET
sets factor incomes eg
wages
Y=
Income
GOVERNMENT
SECTOR
T = direct
taxation
Tr = transfers
Real flows
Money flows
Factors of
production
RESOURCE M ARKET
- sets factor incomes
eg. wages
© NZCETA Curriculum & Membership Services
Page 4 of 22
Real flows
Money flows
Y=
income
ECO 06/2/1
Demand and supply models
1. Demand curves
Demand curve
Decrease in demand
$
$
P*
P*
D
D
D1
Q*
Q1
Q
Increase in demand
Q*
Q
Increase in quantity demanded
$
$
P*
P*
P1
D
D1
D
Q*
Q*
Q1
Q
Q1
Quantity
Decrease in quantity demanded
$
P1
P*
D
Q1
Q*
Quantity
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ECO 06/2/1
2. Supply curves
Supply curve
Decrease supply
Price
Price
S1
S
P*
S
P*
Q*
Q1
Quantity
Increase in supply
Q*
Quantity
Increase in quantity supplied
Price
Price
S
S
S1
P1
P*
P*
Q*
Q1
Quantity
Q*
Q1
Quantity
Decrease in quantity supplied
Price
S
P*
P1
Q1
Q*
Quantity
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ECO 06/2/1
3. Changes market equilibrium
Market equilibrium
Path to equilibrium from an excess supply
$
$
S
16
e
12
surplus
XS
14
e
12
P
14
P
S
16
P
10
10
8
8
D
D
6
6
0
0
10
20
30
40
50
60
70
80
90
100
10
Qe
$
XD
50
60
Q
70
80
90
e
100
Quantity
D
Q
S
$
S
16
14
P
40
Market equilibrium after an increase in supply
S
16
e
30
Q
Path to equilibrium from an excess demand
P
20
Quantity
14
12
e
P
10
1
12
S1
10
P
shortage
8
8
D
D
6
6
0
0
10
20
30
40
50
Q
60
70
80
90
e
QS
100
10
20
30
40
50
Quantity
Q
QD
Market equilibrium after a decrease in supply
60
e
70
Q
80
90
100
Quantity
1
Market equilibrium after an increase in demand
1
S
$
$
S
16
1
P
P
14
e
P
S
16
1
14
12
e
P
10
12
1
D
10
8
8
D
6
D
6
0
0
10
20
30
Q
40
1
50
Qe
60
70
80
90
100
10
Quantity
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20
30
40
50
Qe
60
70
Q
80
1
90
100
Quantity
ECO 06/2/1
Market equilibrium after a decrease in demand
$
S
16
14
e
12
1
10
P
P
8
D
6
D1
0
10
20
30
Q1
40
50
Qe
60
70
80
90
100
Quantity
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ECO 06/2/1
4. Labour market supply and demand
Labour market disequilibrium – excess supply =
involuntary unemployment
Labour market equilibrium
Real Wage
Rate
($)
SL
Real Wage
Rate
($)
SL
w/p1
w/p*
w/p*
DL
DL
If at the EQUILIBRIUM
quantity all workers willing
+ able have jobs so no
INVOLUNTARY U = FULL
EMPLOYMENT
Q of Labour
QL
Q of Labour
Number of
workers
EMPLOYED
Q MAX
Labour market equilibrium after an increase in
demand
Real Wage
Rate
($)
Labour market equilibrium after a decrease in
demand
Real Wage
Rate
($)
SL
1
w/p
w/p*
w/p*
1
w/p
DL
DL
QL
QL
Q Max
Number of
workers
VOLUNTARILY
UNEMPLOYED
Number of workers
INVOLUNTARILY
UNEMPLOYED
SL
DL
1
DL
1
Q of Labour
Labour market equilibrium after an increase in
supply
QL
1
1
QL
Q of Labour
Labour market equilibrium after a decrease in
supply
SL
Real Wage
Rate
($)
SL
SL
1
Real Wage
Rate
($)
w/p*
1
w/p
1
w/p
w/p*
SL
DL
QL
QL
1
1
DL
Q of Labour
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QL
1
QL
Q of Labour
ECO 06/2/1
5. Forex market supply and demand
Foreign exchange market
Exchange
rate
Increased demand in forex market
 an appreciation
NZ FOREX MARKET
S $NZ = comes from people
needing forex
ie. all outflows from NZ’s
B of P
eg. import payments
NZ Exchange
rate
eg. $1 NZ
=$Aus 0.90
NZ
Exchange
rate
NZ FOREX MARKET
S $NZ
$1 NZ =$Aus 1.00
1
e
D
$1 NZ =$Aus 0.90
D $NZ = comes from people
with forex wanting NZ $
ie. all inflows into NZ’s
Bof P
eg. export receipts
D $NZ
An increase in
the value of the
NZ exchange
rate =
APPRECIATION
Q $NZ / forex
Q $NZ / forex
Decreased demand in forex market
 a depreciation
NZ
Exchange
rate
A decrease in
the value of the
NZ exchange
rate =
DEPRECIATION
$NZ
Decreased supply in forex market
 an appreciation
NZ
Exchange
rate
NZ FOREX MARKET
S $NZ
NZ FOREX MARKET
1
S
S $NZ
$NZ
$1 NZ =$Aus 1.00
$1 NZ =$Aus 0.90
$1 NZ =$Aus 0.90
$1 NZ =$Aus 0.80
D $NZ
1
D
$NZ
Q $NZ / forex
An increase in
the value of the
NZ exchange
rate =
APPRECIATION
D $NZ
Q $NZ / forex
Increased supply in forex market
 a depreciation
NZ
Exchange
rate
A decrease in
the value of the
NZ exchange
rate =
DEPRECIATION
NZ FOREX MARKET
S $NZ
1
$1 NZ =$Aus 0.90
S
$NZ
$1 NZ =$Aus 0.80
D $NZ
Q $NZ / forex
© NZCETA Curriculum & Membership Services
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ECO 06/2/1
Effect of exchange rate changes on imports
NZ Import Market
S
S$NZ
$1US
EXCHANGE RATE
Forex Market
$NZ 2.50
$NZ 2.00
D$NZ
$NZ 1.50
Q$NZ
D
M
M
Effect of exchange rate changes on exports
NZ Export Market
S $NZ
$1US
D $NZ
EXCHANGE RATE
Forex Market
S
$NZ 2.50
$NZ 2.00
$NZ 1.50
Q$NZ
D
X
X
© NZCETA Curriculum & Membership Services
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ECO 06/2/1
6. International trade supply and demand
2 Country Supply and Demand
NZ
Aussie
P
P
D
S
S
PBT
X
PW
M
D
PBT
QCAT QBT
QPAT
QPAT QBT
Q
QCAT
Q
QCAT = Quantity consumed domestically after trade
QPAT = Quantity produced domestically after trade
QBT = Quantity consumed and produced domestically before trade
PW= Domestic price after trade
(Note that PW is the same in BOTH countries)
PBT= Domestic price before trade
X = Quantity exported
M = Quantity imported
Price-taking importer
NZ
World Market
P
P
S
S
PBT
PW
M
D
D
QTRADED
Q
QPAT QBT
QCAT
Q
QCAT = Quantity consumed domestically after trade
QPAT = Quantity produced domestically after trade
QBT = Quantity consumed and produced domestically before trade
PW= World price after trade
(Note NZ buys at PW as it is a price-taker [too small to influence the price ] in this market)
PBT= Domestic price before trade
M = Quantity imported
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ECO 06/2/1
Price-taking exporter
NZ
World Market
P
P
S
S
X
PW
PBT
D
D
QTRADED
Q
QCAT
QBT
QPAT
Q
QCAT = Quantity consumed domestically after trade
QPAT = Quantity produced domestically after trade
QBT = Quantity consumed and produced domestically before trade
PW= World price after trade
(Note NZ buys at PW as it is a price-taker [too small to influence the price ] in this market)
PBT= Domestic price before trade
X = Quantity exported
© NZCETA Curriculum & Membership Services
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ECO 06/2/1
7. Sales taxes and subsidies and supply and demand
Sales Tax
Sales tax
P
Stax
Ptax
= the revenue earned by
govt from the tax
ie. = Ptax – Ppr X Qtax
S
Vertical distance between
the 2 supply curves is the
per unit amount of tax
ie P tax - P pr
P*
Ppr
D
Qtax Q*
Ppr= price producer
receives after the tax
Ptax= price consumers
pay after the tax
Q
Note the price increase
DOESN’T = the $ amount of
tax
ie. Producers absorb some of
its cost
Subsidy
P
Subsidy
S
Ppr
Ssub
P*
= the amount paid by govt
for the subsidy
ie. = P pr –P sub X Q sub
Vertical distance between
the 2 supply curves is the
per unit amount of subsidy
ie P pr - P sub
Psub
D
Q* Qsub
Ppr= price producer
receives after the subsidy
Psub= price consumers
pay after the subsidy
Q
Note the price increase
DOESNT = the $ amount of
subsidy
ie. Producers pass some of it
on to consumers
© NZCETA Curriculum & Membership Services
Page 14 of 22
ECO 06/2/1
Production possibility curves
Production possibility diagram
Consumer
goods
PPC showing an increase in production from
unemployment to full employment
Curve shows the possible
production combinations if
resources and technology
are fully utilised
Consumer
goods
B
A
Capital goods
Capital goods
PPC showing an unemployment or underutilisation of resources/technology
Consumer
goods
X shows the possible
production combination that
does NOT fully utilised
resources and technology
PPC showing an increase in productive capacity
Consumer
goods
Capital goods
Capital goods
PPC showing an decrease in productive capacity
Consumer
goods
PPC showing a resource / technology change
increasing productive capacity of ONE good
Consumer
goods
Capital goods
Capital goods
PPC showing a resource / technology change
decreasing productive capacity of ONE good
PPC showing basis for trade
Bottles England
of wine
Specialize
Imports
B
Key
Portugal
Exports
Consumer
goods
Bottles
of wine
B
CPC
PPC
Potential
gains from
trading
A
A
Exports
Bolts of
cloth
Imports
Bolts of
cloth
Capital goods
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ECO 06/2/1
Lorenz curves
100%
100%
Cumulative % of
income
Lorenz curve showing increased inequality
Cumulative % of
income
Lorenz curve
Lorenz curve A
Lorenz curve A
Lorenz curve B
0%
Cumulative % of
households
Lorenz curve showing decreased inequality
Cumulative % of
households
100%
Lorenz curve and gini coefficient
income
100
% of income
Cumulative % of
income
100%
Cumulative % of
households
Gini coefficient = ratio of A
to A+B
 complete equality
occurs when A = 0
complete inequality
occurs when B = 0
A
A
B
Lorenz curve B
0
Lorenz curve A
0%
0%
100%
% of households
100
100%
Equity efficiency trade off
Equity / efficiency trade-off
Equity /
Equality
Policies to
improve equity
result in a loss of
economic
efficiency
Efficiency
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ECO 06/2/1
Aggregate Supply and Aggregate Demand Graphs
Aggregate Demand
Aggregate Supply
AS
PL
PL
PL1
PL2
PL2
PL1
AD
Y1
Y2
Y1
Y (= Real GDP)
Y (= Real GDP)
Y2
FULL
Y
AS-AD equilibrium
Inflationary Gap
PL
PL
AS
AS
Inflationary
Gap
PL*
AD
PL*
AD
Y* = YF
Real GDP
YF
Y*
Real GDP
Deflationary (Recessionary) Gap
PL
Deflationary
Gap
AS
\
PL*
AD
Y*
YF
Real GDP
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ECO 06/2/1
Demand pull inflation
Cost push inflation
AS
AS1
AS
PL1
PL1
PL
PL
AD1
AD
AD
Real output
AS-AD showing a TIGHT monetary policy
(ie. increasing the OCR)
Real output
AS – AD showing a CONTRACTIONARY fiscal
policy (eg. running an operating surplus)
Price
Level
PL
AS
AS
AS1
PL*
AD
PL*
1
PL
PL1
AD1
AD
AD1
Y1 Y*
Y FULL
Real Output
Y1 Y*
Y full
Real Output
AS – AD showing the effect of a depreciating
$NZ
PL
AS1 AS
PL1
PL*
AD1
AD
Y*Y1
Y FULL
Real Output
© NZCETA Curriculum & Membership Services
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ECO 06/2/1
Firm Graphs
1. Perfect competition
Long run equilibrium for a Perfectly
competitive firm
Perfectly competitive firm making SUPERNORMAL profit
Super -normal Profit
when AR >AC at Q*
Revenue /
Cost ($)
$
MC
MC
AC
AC
AR at
Q*
Pc
D=AR=(MR)
D
AC at
Q*
Q*
Q
Qc
Remember MC must
cut AC at AC min
Perfectly competitive firm making SUBNORMAL profit
Revenue /
Cost ($)
Perfectly competitive firm making NORMAL
profit
Sub -normal Profit
when AC >AR at Q*
Revenue /
Cost ($)
MC
Output
Normal Profit when
AR = AC at Q*
MC
AC
AC
AC at
Q*
AR at Q*=
AC at Q*
D
AR at
Q*
D = AR
Remember MC must
cut AC at AC min
Remember MC must
cut AC at AC min
Q*
Q*
Output
Output
Moving from SR super-normal profit to LR equilibrium
The Firm
$
The Market
$
MC
S
S1
AC
Pc
D=AR=(MR)
Pc1
D1=AR=(MR)
P0
P1
D
Qc1
Qc
Q
Q0
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Q1
Q
ECO 06/2/1
Moving from SR sub – normal profit to LR equilibrium
AC
The Firm
$
1
$
MC
1
c
The Market
S
S
1
P
D =AR=(MR) P10
Pc
D=AR=(MR) P0
D
Qc Q1c
Q
1
Q0
Q
Q0
Breakeven and shut down points
Breakeven
point ([AR=]P=/<AC)
Price
MC
AC
AVC
PBE
BE
D =AR
PSD
D1=AR
SD
Shutdown point
([AR=]P =/<AVC)
QSD QBE
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Output
ECO 06/2/1
2. Monopoly
Profit maximising output level for a monopoly
Justifying the profit maximisation position
Revenue /
Cost ($)
Revenue /
Cost ($)
MC
MC
MC > MR
D = AR =MR
MR > MC
MR
Q*
Q1
Q*
Q2
Output
Output
Profit max
Q* =
Profit
maximizing
output level
At Q1 MR > MC and so missing out on some
marginal profits (ie. RED area) and thus not at
maximum total profit position
At Q2 MC > MR and so making marginal losses (ie.
BLUE area) that decrease total profit and thus not at
maximum total profit position
Monopoly making super-normal profit
Monopoly making sub-normal profit
Cost /
revenues
Cost /
revenues
AC
MC
MC
AC at
Qm
AC
AR = Pm
AR = Pm
AC at
Qm
D = AR
D = AR
Output
Output
Qm
Qm
MR
MR
Monopoly making normal profit
Natural monopoly
Cost /
revenues
Cost /
revenues
MC
AC
AC at = AR = Pm
Qm
PNM
c
E
b
h
D = AR
Output
Qm
LRAC
E*
PPC
a
MR
MC
D = AR
QNM
QPC
Output
MR
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ECO 06/2/1
Social marginal benefit and social marginal cost
Social equilibrium
Negative externality of production
Negative Production Externality
Social equilibrium (where SMC = SMB)
SMC/
SMB
SMC
MC/
MB
The deadweight loss
triangle shows the amount
of welfare loss due to over
production of this product
at QFM
SMC
PMC
Vertical gap between SMC
and PMC = the cost of
production on third parties
when producing QFM output
ie -ve spillover cost
PS
P*
PFM
SMB
PMB =SMB
Q*
Output
QS
Positive externality of production
Negative Consumption Externality
MC /
MB
PMC
Vertical gap between SMC
and PMC = the benefits
received by third parties of
consuming QFM output
ie +ve spillover benefits
PS
The deadweight loss triangle
shows the amount of welfare
loss due to over
consumption of this product
at QFM
PMC = SMC
SMC
Vertical gap between SMB
and PMB = the cost on third
parties when consuming
QFM output
ie -ve spillover cost of
consumption
PS
The deadweight loss
triangle shows the amount
of welfare loss due to under
consumption of this
product at QFM
PFM
PFM
PMB
SMB
PMB =SMB
QS
QFM QS
Positive Consumption Externality
Vertical gap between SMB
and PMB = the benefits
received by third parties of
consuming Q FM output
ie. +ve spillover benefits
QFM
Output
Output
Positive externality of consumption
MC/
MB
Output
Negative externality of consumption
Positive Production Externality
MC/
MB
QFM
Market for a Public good
Costs/
Benefits
20 -PMC = SMC
The deadweight loss
triangle shows the
amount of welfare loss
due to under
consumption of this
product at Q FM
PFM
PS
15 --
DWL at QFM
10 -SMC
SMB
5 --
PMB
0
QFM
SMB
QFM
QS
Output
Qs
output
SMC = 0 as public goods are non – depletable
QFM = 0 as public goods are non – excludable by
price
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