Graphs Flashcards
Graph for law of diminishing marginal utility
Marginal utility against consumption graph
Total utility and marginal utility curves
NB: for marginal utility curve, each point is plotted at -0.5 the actual value of the quantity
Total utility and Marginal utility graphs
Price against quantity
Total utility and marginal utility curves
NB: when TU peaks (max), MU is equal to zero
NB: gradient of total utility curve is the marginal utility curve
Basic indifference analysis graph
Good y against good x
Budget line and indifference curve
NB: Consumer equilibrium occurs where the indifference curve meets the budget line
Indifference curve map
Good y against good x
Multiple indifference curves, 2 budget lines and the consumption income line
NB: consumer equilibrium is where the indifference curve in tangential to the highest budget line
Nonoptimal indifference curve diagram
Good y against good x
Indifference curve and 2 budget lines
NB: the points on the higher budget line are not optimal as the consumer could be spending less to gain the same total utility
Indifference diagram for price changes with a normal good
Good y against good x
2 budget lines based on price changes, 1 dotted budget line drawn parallel to the second budget line, 2 indifference curves drawn in line with each other on the budget lines
Decrease in price: positive substitution and income effect
Increase in price: negative substitution and income effect
Indifference diagram for price changes with an inferior good
Good y against good x
2 budget lines based on price changes, 1 dotted budget line drawn parallel to the second budget line, 2 indifference curves drawn in line with each other on the budget lines
Decrease in price: positive substitution and negative income effect
Increase in price: negative substitution and positive income effect
NB: substitution effect is dominating
Giffen good diagrams
1
Price against quantity
Upwards sloping demand curve
NB: that is conspicuous consumption
Price against quantity
Demand curve
NB:
When price exceeds the consumers entire income the deamnd for the good begins to decline
Indifference diagram for price changes with a giffen good
Good y against good x
2 budget lines based on price changes, 1 dotted budget line drawn parallel to the second budget line, 2 indifference curves drawn in line with each other on the budget lines
Decrease in price: positive substitution and negative income effect
Increase in price: negative substitution and positive income effect
NB: income effect is dominating
Envelope curve examples (3)
1 (Good monopoly)
Cost per unit against quantity
LRAS (envelope) curve
NB: mark EOS and DOS (x-inefficiency
which is a lack of productive efficiency)
NB: o represents the optimal level of production, which is the lowest point of the curve
2
Cost per unit against output
LRAC curve
NB: A - B is a flat line, A is the minimum efficient scale and A - B is productively efficient
3 (Natural monopoly)
Cost per unit against output
LRAC curve
NB: this diagram represents EOS
Allocative efficiency
Price against quantity
MSC and MSB curve
NB: where MSC and MSB meet is the socially efficient quantity to produce
Positive and negative externalities from production and consumption
1
Positive externality from production
Price cost and benefit against quantity
MPC, MSC, MSB curves
NB: MPC > MSC
NB: Gap between MSC and MPC is MEB
2
Positive externality from consumption
Price cost and benefit against quantity
MSC, MPB, MSB curves
NB: MSB > MPB
NB: Gap between MSB and MPB is MEB
3
Negative externality from production
Price cost and benefit against quantity
MPC, MSC, MSB curves
NB: MSC > MPC
NB: Gap between MSC and MPC is MEC
4
Negative externality from consumption
Price cost and benefit against quantity
MSC, MPB, MSB curves
NB: MPB > MSB
NB: Gap between MSB and MPB is MEC
Regulation diagram
Regulation adds a cost to production
Extending property rights diagram
Price against quantity
Perfectly inelastic supply curves, dotted demand curve drawn parallel to original demand curve and a demand curve
SR production law diagrams (2)
1
Total product of labour against quantity of labour
Total product of labour curve
NB: gradient increases exponentially, gradient decreases exponentially while still rising, gradient decreases exponentially
NB: increasing returns to a factor, diminishing returns to a factor, decreasing returns to a factor
2
MPʟ, APʟ against Qʟ
MPʟ and APʟ curves
NB: Gradient of TPʟ is MPʟ
NB: MPʟ cuts APʟ at the highest point of the APʟ
Short run costs diagrams (2)
1
Total cost against output
Total cost curve
NB: a line drawn tangentially from the origin to the lowest point of the TC curve is where MC is at its lowest
2
Marginal cost and average total cost against output
Marginal cost and average total cost curves
NB: MC curve cuts ATC curve at its lowest point
Short run fixed and variable costs
1
Costs against quantity
TC, TVC and TFC curves
2
Costs against quantity
AFC, ATC, AVC curves
3
Cost, price against quantity
MC, ATC, AVC curves
Break even and shut down point
Cost, price, revenue against quantity
MC, ATC, AVC, D = AR = MR = P, D2 curves
NB: Break even is where ATC crosses MC and where D = AR = MR = P is a tangent
NB: Shutdown is where AVC crosses MC and where D2 is a tangent
Above D = AR = MR = P is the profit zone
Below D2 is the shutdown zone
05/03
Short run average costs and long run average cost diagram
Cost (per unit) against quantity
LRAC and 5 SRAC curves
NB: beyond Q* there is diseconomies of scale and diminishing returns to scale
NB: prior to Q* there is economies of scale and increasing returns to scale
Perfect competition graphs (2)
1
Cost, revenue, price against quantity
TR and TC curves
NB: normal profits where TR = TC
NB: profit maximisation where TR is the highest over TC
2
Cost, revenue, price against quantity
D = AR = MR = P, MC and ATC curves
NB: Q* is physically below the profit maximisation point
NB: MC cuts ATC at its lowest point and this happens at Q*
NB: Normal profit is made as AR = ATC
Imperfect competition graphs
Cost, revenue, price against quantity
TR and TC curves
NB: profit maximisation where TR is the highest over TC
Internal EOS LR
Costs, revenue against output
Multiple LRAS curves
External EOS LR (2)
1 (External EOS)
Price against quantity
D₁, D₂, Ssʀ₁, Ssʀ₂, LR curves
NB: there is an increase in D and Ssʀ
NB: initially the price increases and profits are greater
NB: LR costs decrease
2 (External DOS)
D₁, D₂, Ssʀ₁, Ssʀ₂, LR curves
NB: there is an increase in D and Ssʀ
NB: LR costs increase
Basic diagrams for each market structure
Perfect competition: perfectly elastic demand curve
Monopolistic competition: elastic demand(AR) curve and elastic MR curve
Oligopoly: kinked demand (AR) curve and kinked MR curve where MR curve has dotted line under kink of demand (AR) curve
Monopoly: inelastic demand (AR) curve and elastic MR curve
Remaining market structure diagrams
Diagrams drawn for each market structure for subnormal, normal and supernormal profits
“Bad” monopoly
Cost, revenue, price against quantity
Mc, D=AR and MR curves
NB: MC curve crosses y-axis
NB: show producer surplus, gain in producer surplus, loss in allocative efficiency and deadweight loss
NB: points at MC = MR and MC = AR
NB: there is an increase in price and decrease in quantity
“Good” monopoly
1
Cost, revenue, price against quantity
D = AR and MR curves drawn from axis to axis, MCᴘᴄ and MCᴍ curves
NB: there is a decrease in price and increase in quantity
Price discrimination (first degree, second degree, third degree)
First degree:
Cost, revenue, price against quantity
D = AR curve drawn from axis to axis
NB: Triangle above price is shaded to show CS
Second degree:
Cost, revenue, price against quantity
D = AR curve drawn from axis to axis
NB: two points are chosen to show prices for different quantities
Third degree (2 graphs drawn side by side):
Cost, revenue, price against quantity
NB: one with elastic D=AR and MR and one with inelastic D=AR and MR
NB: lower prices for elastic PED and higher prices for inelastic PED
Existence of small firms
Cost per unit against quantity
3 SRAC curves (small, med, large), LRAC curve
NB: this shows that a firm may quickly achieve EOS and remain small and be competitive
Different MR curves for an oligopoly
Regular oligopoly diagram but with multiple MC curves for different firms who can all profit maximise and make supernormal profits
Lorenz curve and Gini coefficient
Used to measure income inequality
Box with 45º line of absolute equality
The Gini coefficient is the area between the curve and the line of absolute equality
Generally below 0.5 is considered good or as an equal distribution
Laffer curve
The laffer curve provides an argument against progressive taxes
Tax rates against tax revenue
Wage determination graphs
2 graphs with wage against quantity of labour
different elasticities of demand and supply showing different resulting wages
MRPʟ graph
Simple demand graph with wage against Qʟ where Dʟ = MRPʟ
Individual labour supply curve
Wage against quantity of labour
Labour supply curve
NB: sub effect until turning point, after turning point is income effect
Up until W1, substitution effect is greater than income effect hence as the wage goes up so does the quantity of labour supplied
After W1, income effect is greater than substitution effect hence as the wage goes up the quantity of labour supplied decreases
Criticisms:
1. most workers do not get to choose the amount they work
2. typically workers are tied to a 40 hour week and contract
Labour supply for firms (PC 2, IC 2)
Wage against qL for all
Sʟ, Dʟ curves
Equilibrium and profit maximisation at MRPʟ = MCʟ
Economic rent and transfer earnings, together and each seperately
1
Wage against Qʟ
Sʟ and Dʟ curves
NB: economic rent is inside and transfer earnings is outside
Pure economic rent
2 Dʟ curves
Pure transfer earnings
perfectly elastic Sʟ curve
Effect of NMW
Wage against Qʟ
Sʟ and Dʟ curves
(Effectively a minimum price above equilibrium diagram)
Argument for a NMW
Effectively an increase in demand diagram with wage against Qʟ and a flatline NMW above the equilibrium wage
**MRPʟ may not increase if the extra income is spent on imports or savings, as well as if greater output is achieved by increasing production using capital
0five/0five
Circular flow of income
Components:
1. Households and firms
2. Financial sector (savings , investment)
3. Govt. sector (taxation , govt spending)
4. Foreign sector (imports , exports)
First is a withdrawal or leakage, second is an export
At equilibrium W = J
If J > W then the economy grows
If W > J the economy shrinks
Keynesian aggregate expenditure model with a withdrawals and investment graph below
Keynes diagram:
Aggregate expenditure (AE) against RNI
45º line
Consumption with government
Consumption without government
AE = C + I
Point plotted where C without govt meets the 45º line
Point plotted where AE meets the 45º line
W,S diagram:
W, J against RNI
start S at a negative figure of investment
Investment is a flatline
S crosses x-axis where C without govt meets the 45º line
I crosses S where AE meets the 45º line
30/05
Trade/Business cycle graph
%∆ in real GDP against time
potential gdp curve with other curve
show boom, slow down, recession and recovery
Full sector Keynesian 45º line model of AE
AE against RNI
E = Y at 45º, AE = C + I + G + X - M
Where AE > Y and AD > AS there is an inflationary gap
Where Y > AE and AS > AD there is an deflationary (recessionary) gap
Below W, J
I + G + X meets S + T + M at Ye, Ye is where AE meets E = Y (straight line)
S + T + M starts at C̄
06/06
Keynesian counter cyclical policy graph
Regular Keynesian graph with AE1 and AE2, inc in AE starts of the multiplier/accelerator process which stimulates AD
This can be used when in a recession
Keynesian trade cycle belief diagram
%∆ in real GDP against time
potential gdp curve with recession line
show inc and dec in taxation and govt spending
Keynesian disequilibrium to equilibrium
S, I against RNI
Invest line, saving line
Explanation:
moving from Y1 to Ye, deflationary situation where more is supplied than demanded, signals firms to produce less for RNI to fall
moving from Y2 to Ye, inflationary situation where more is demanded than supplied, signals the need for an increase in RNI as stocks will be run down
Inflationary and deflationary gaps
Price level against real gdp
AS and 2 AD curves
Inflationary gap Ye > Yf, keynesian solution decrease G and increase T
Deflationary gap Yf > Ye, keynesian solution increase G and decrease T
Inc in AS and AD
Price level against real gdp
Inc in AD
In in AS, LRAS with swivel
show effects
Keynesian vs monetarist extreme
PL against real gdp for both
Keynes has box like LRAS and inc in AD from Ye to Yf
Monetarist has perfectly inelastic LRAS and at Yf inc in AD leads to inflation only
Phillips Curve
∆ in money wages (inflation) against unemployment
LRAC for natural monopoly shaped curve
Suggests there is an inverse relation between unemployment and inflation, supports keynesian view, can not be explained when there is stagflation
Expectations augmented phillips curve
∆ in money wages (inflation) against unemployment
Vertical LRPC
3 SRPC one crossing x-axis at NRU
Inc in govt spending to reduce unemployment in short run, to do this they could also lower wages which increases inflationary expectations and inflation rises, if they do this again the cycle repeats and inflation continues to rise
Monetarist view is that any attempt to lower unemployment using demand management policies will increase inflation without any growth
Keynesian liquidity preference theory (3, 1)
r against Qm for all 3
1 - vertical Md, precautionary demand
2 - LRAC shaped Md, speculative motive
3 - combining both graphs to form q* and r*
Equilibrium:
r against Qm
LRAC shaped Md curve, but it flattens out
4 vertical Ms curves showing decreasing int rates
Loanable fund theory
r against Qm
Dm and 2 Sm curves, Sm dec
Int rates are the cost of borrowing and the return on savings
This theory implies that monetary policy is predictable
Employment vacancies curve
Vacancies against unemployment
LRAC shaped U/V curve and 45º line where u = v
Show recession, boom and NRU
At the NRU the economy is at full employment and the only types of u are NRU
Real wage unemployment
w/p against Ql
regular Ls that becomes vertical, and Ld curve
Show excess labour supply and unemployment
Voluntary unemployment
w against Ql
Ld and Ls curve that becomes vertical
show q* to qf and w*
q* to qf are voluntarily u because wages are not high enough for them to work
Cyclical unemployment (2)
w/p against qL
_ against time
recession and boom with straight line
kinked LD and dotted regular Ld as well as kinked LS curve showing u
Available for jobs - labour force model
w/p against qL
AJ line above Lf line and Ld line
Lf > AJ represents frictional and structural unemployment
J-curve adjustment for depreciation
NZD dec 10%, current a/c against time
At lowest point, or stationary point the ML condition is met
two/07
Managed float
Currency/other currency against quantity of numerator currency
S numerator currency, D numerator currency
Wavy lines to indicate upper and lower limit of float
Sell currency, or dec r to dec currency
Buy currency, or inc r to inc currency
Harrod-domar growth model
consumer goods against capital goods
essentially a PPC curve
savings are necessary to grow, saving funds investment, to save a nation must refrain from current consumption
Criticism:
funding may come from inward FDI, but profits may leave the LEDC
poor people can’t save and there is no guarantee that the savings will be used for investment
