PPFs and Other Diagrams

PPFs and Other Diagrams

C Output of consumer goods and services A B Output of capital goods

C All Other Operations A B Heart Operations

Costs Revenues SAC1 SAC2 AR (Demand) Output (Q)

Basic Supply and Demand Analysis

Demand Curve Price P2 P1 P3 Demand Q2 Q1 Q3 Quantity Demanded

Shift in demand Price P1 D2 D1 D3 Q2 Q1 Q3 Quantity Demanded

Consumer Surplus and Price Elasticity of Demand
Relatively Inelastic Demand Relatively Elastic Demand Price Price P1 Demand Demand Q1 Q2

Consumer Surplus and Price Elasticity of Demand
Relatively Inelastic Demand Relatively Elastic Demand Price Price P1 Demand Demand Q1 Quantity Demanded Q2 Quantity Demanded

Perfectly Elastic Demand Perfectly Inelastic Demand
Price Price Demand P2 P1 P1 Demand P3 Q2 Q1 Q3 Quantity Q1 Quantity

Perfectly Elastic Supply Perfectly Inelastic Supply
Price Price Supply P2 P1 P1 Supply P3 Q2 Q1 Q3 Quantity Q1 Quantity

Relatively Elastic Supply
Supply responds quickly to a change in demand Relatively Inelastic Supply Supply responds less than proportionately to a change in price Price Price Supply P2 Supply P3 P1 P2 P1 P3 D3 D1 D2 D3 D2 D1 Q2 Q1 Q3 Quantity Q1 Quantity

Price Supply P2 P1 D1 D2 Q1 Q2 Quantity

Price of DVD players Supply of DVD players P2 P1 D1 D2 Q1 Q2 Quantity demanded

Supply Price of Sterling in Euros P2 P1 Demand 1 Demand 2 Q1 Q2 Quantity of Pounds Sterling

S1 Price S2 P2 P1 P3 D1 D2 Q1 Q2 Q3 Quantity

Government Subsidy S1 Price Supply + Sub P3 P1 Subsidy per unit P2
Demand Q1 Q2 Quantity of Council Housing

Government Subsidy S1 Average Weekly Rent £ Supply + Subsidy
Subsidy per unit P1 P2 Demand Q1 Q2 Quantity of Council Housing

Supply + Export Subsidy
Price G Supply pre subsidy Supply + Export Subsidy D A C E F B Demand Q1 Q2 Quantity

Price S1 S2 P1 P2 D1 Q1 Q2 Quantity

Price S2 S1 F C A B E D D1 I J G H Quantity

Demand Price Supply post tax Supply pre tax P2 P1 Q1 Quantity

Supply curves with different price elasticity
B Price Price Supply Supply Quantity Quantity Price C Supply Price D Supply Quantity Quantity

Demand curves with different price elasticity
B Price Price Demand Demand Quantity Quantity Price C Supply Price D Demand Demand Quantity Quantity

Supply Price P2 P1 D1 D2 Q1 Q2 Quantity

Price of Good S Demand Quantity demanded of Good T

S2 S1 Price P2 P1 D2 D1 Q2 Q1 Quantity

Price S pre subsidy Price S pre subsidy P1 P1 D2 D2 Q1 Quantity Q1 Quantity

Maximum Prices Price Supply Free Market Equilibrium Pe P max
Price Ceiling Excess Demand Demand Q2 Q1 Quantity

Maximum Prices Rent £s Supply Free Market Equilibrium Pe P max
Price (Rent) Ceiling Excess Demand Demand Q2 Q1 Quantity of Rented Property

Maximum Prices Price Supply Pe P max Maximum Price Demand A B C D
Quantity

Supply Price Excess Supply P min Price Floor (Guaranteed) Pe Demand Q3 Q2 Q1 Quantity of output

Price Support Schemes – Buffer Stocks
Supply Price P min Minimum Price Pe Demand A B C Quantity

Price Support Schemes – Buffer Stocks
Supply S2 Price P min Price Floor (Guaranteed) Pe Demand Q3 Q1 Q4 Quantity

Price S1 S2 P1 P2 Demand Q2 Q3 Quantity

Increasing Market Supply – Consumer Benefits
Price S1 S2 P1 P2 Demand Q2 Q3 Quantity

Producer Surplus Price Supply Equilibrium Point P1 Producer Surplus
Demand Q1 Quantity

Producer Surplus Price Supply A P1 B C D Demand Q1 Quantity

Consumer Surplus Price Supply Equilibrium Point Consumer Surplus P1
Demand Q1 Quantity

Market Equilibrium Price Supply Equilibrium Point P1 Demand Q1
Quantity

Market Failure Diagrams

Social Efficiency / Welfare Losses
Social Marginal Cost Costs Revenues Private Marginal Cost (Supply) P2 P1 Demand = Private Benefit = Social Benefit External Cost Q2 Q1 Output (Q)

Negative Externalities
Benefits Costs Social Equilibrium Marginal Social Cost a c b Marginal Private Cost P1 Demand (Private Marginal Benefit) Q2 Q1 Quantity of Output (Q)

Tackling Externalities
Voluntary Agreement Pesticides EU C02 from cars agreement Aggregates Levy Landfill Tax Fuel Duty Climate Change Levy (CCL) Taxation Regulation Negative Externalities Pollution Trading Schemes Tax Credits Emissions trading scheme Landfill permits Water quality legislation Reduced VAT on installation of central heating

Loss of Social Welfare from Externalities
Benefits Costs Social Equilibrium Marginal Social Cost a c b Marginal Private Cost P1 Deadweight loss of economic welfare Demand (Private Marginal Benefit) = Social Marginal Benefit (SMB) Marginal External Cost Q2 Q1 Quantity of Output (Q)

Demand + External Benefits
Merit Goods Costs Benefits A Supply External Benefit B Demand + External Benefits Private Demand Qp Qs Quantity of Housing

Merit Goods and Welfare Loss
Costs Benefits Welfare loss where SMB>PMB above output Qp A PMC = SMC External Benefit C B SMB PMB Qp Qs Output (Q)

The Demand Curve for Public Goods
Costs Benefits Value 2 Value 1 Value 1 Demand from A Demand from B Q1 Output (Q)

Costs Benefits Demand A+B Value 2 Value 1 Value 1 Demand A Demand B Q1 Output (Q)

Socially Efficient Provision of Public Goods
Costs Benefits Demand A+B Marginal Social Cost (MSC) Demand A Demand B Qp Output (Q)

Costs Benefits SMC External Cost PMC Net Welfare Loss Marginal External Cost PMB = SMB Qs Qp Output (Q)

Negative Externalities – Pollution Tax
Costs Benefits SMC PMC + TAX PMC PMB = SMB Qs Qp Output (Q)

De-Merit Goods and Health Awareness
Price Marginal Social Cost Marginal Private Cost P1 Demand (Limited Information) Demand (Full Information) Q3 Q2 Q1 Quantity

Export Subsidy Domestic Supply Price World Price + Sub P3 World Price
Domestic Price Domestic Demand Q3 Q1 Q2 Quantity

Coal Export Subsidy Price per tonne Domestic Supply of Coal
World Price of Coal + Subsidy P3 World Price P2 P1 Domestic Price Domestic Demand Q3 Q1 Q2 Quantity

Import Tariffs Price Domestic Supply A B P2 World Price + Tariff E F
Domestic Demand G H Q3 Q1 Q2 Q4 Quantity

Consumer Surplus Outward Shift in Demand Outward Shift in Supply Price
Q1 Q2 Quantity Q1 Q2 Quantity

An Inward Shift in Demand An Outward Shift in Demand
Price Price SRS S1 P3 P2 P1 P1 D3 D2 D1 D1 Q1 Q2 Quantity Q1 Q3 Quantity

An Outward Shift in Market Demand –
Short Run Market Supply is Inelastic An Outward Shift in Market Demand – Long Run Market Supply is more Elastic Price Price SRS SRS LRS a P1 P1 b P2 P2 D2 D2 D1 D1 Q1 Q2 Quantity Q1 Q2 Q3 Quantity

An Inward Shift in Demand and a Fall in Supply
An Outward Shift in Demand and a Rise in Supply Price Price S2 S1 S1 S2 P2 P1 P1 P2 D3 D1 D1 D2 Q2 Q1 Quantity Q1 Q2 Quantity

An Outward Shift in Coffee Demand and a Rise in Coffee Supply
Q1 Q2 Quantity

An Outward Shift in Oil Demand when Supply is Inelastic
Q1 Q2 Quantity

S1 Price of DVD players P2 P1 D2 D1 Q1 Q2 Quantity of DVD players

Price S1 S2 P1 P2 D1 Q1 Q2 Quantity

An Inward Shift in Supply An Outward Shift in Supply
Price S2 Price S1 S1 S3 P2 P1 P1 P3 D1 D2 Q2 Q1 Quantity Q1 Q3 Quantity

Indirect Taxes and Elasticity of Demand
A Tax When Demand is Price Elastic A Tax when Demand is Price Inelastic Price S + Tax Price S + Tax S1 S1 P2 P2 P1 D1 P1 D1 Q2 Q1 Quantity Q2 Q1 Quantity

Price Supply P2 P1 P3 Q3 Q1 Q2 Quantity

Price Supply P5 P4 P3 P2 P1 Q1 Q2 Q3 Q4 Q5 Quantity

Price S3 S1 S2 Decrease in Supply Increase in Supply P1 Q3 Q1 Q2 Quantity

Theory of the Firm Diagrams

Fixed Costs Costs Total Fixed Cost £2000 £1000 Average Fixed Cost 1 2
Output (Q)

Short Run Cost Curves Costs Marginal Cost (MC)
Average Total Cost (ATC) Average Variable Cost (AVC) Average Fixed Cost (AFC) Output (Q)

Short Run Cost Curves Costs A Output (Q)

Increase in Variable Costs
MC2 AC2 Marginal Cost (MC) Average Total Cost (ATC) Average Variable Cost (AVC) AVC2 Output (Q)

The Long Run Average Cost Curve
Costs SRAC1 SRAC3 SRAC2 AC1 AC2 AC3 Q1 Q2 Q3 Output (Q)

The Long Run Average Cost Curve
Costs SRAC1 SRAC3 SRAC2 AC1 LRAC AC2 AC3 Q1 Q2 Q3 Output (Q)

The Minimum Efficient Scale (MES)
Costs SRAC1 SRAC3 SRAC2 LRAC Economies of scale (falling LRAC) due to increasing returns Diseconomies of scale (rising LRAC) due to decreasing returns to scale Minimum Efficient Scale Output (Q)

Economies of Scale and Profits
MC1 Costs Profit at Price P1 Profit at Price P2 P1 SRAC1 SRAC2 P2 MC2 AR (Demand) MR Q1 Q2 Output (Q)

Different output levels (1)
Costs MC ATC AR (Demand) MR A B C D Output (Q)

Different output levels (2)
Costs MC ATC AR (Demand) MR A B C D Output (Q)

Monopoly Price and Output in the Short Run
Revenue Cost and Profit ATC MC P1 AC1 Demand (AR) Q1 MR Output (Q)

Monopoly versus Competition
Revenue Cost and Profit A D B E LRAC = LRMC C Monopoly Demand (AR) MR Q1 Qc Output (Q)

Monopoly versus Competition (Welfare Loss)
Revenue Cost and Profit A P1 Monopoly Profit at Price P1 Deadweight Welfare Loss B Pc LRAC = LRMC C Monopoly Demand (AR) MR Q1 Qc Output (Q)

Natural Monopoly Revenue Cost and Profit LRAC LRMC Demand (AR)
Output (Q)

Natural Monopoly – losses and profits
Revenue Cost and Profit Profit at price P1 Loss at price P2 P1 AC1 LRAC AC2 LRMC P2 Demand (AR) MR Q1 Q2 Output (Q)

Benefits from Cross Subsidisation
Revenue Cost and Profit Revenue Cost and Profit Monopoly Demand (AR) AC AC MC MC AR MR MR Output (Q) Output (Q)

Barriers to Entry – Blockaded Entry
Revenue Cost and Profit A P1 D E AC = MC (Potential Entrant into the market) B Pc C LRAC = LRMC (Existing Monopolist) Monopoly Demand (AR) MR Q1 Qc Output (Q)

The Shut Down Price ATC MC Costs, Revenues P1 AVC AR (Demand) P2 MR
Q2 Q1 Output (Q)

The Shut Down Price ATC MC Costs, Revenues AVC A AC1 B C P1 AR2 MR2 Q1
Output (Q)

The Short Run Supply Curve
ATC MC = supply Costs, Revenues AVC P2 Break-Even Price P1 The Shut Down Price Q1 Output (Q)

Profits and an Increase in Variable Costs
Profit at Price P2 Costs Revenues SRAC2 Profit at Price P1 MC2 P2 SRAC1 AC2 P1 MC1 AC1 AR (Demand) MR Q2 Q1 Output (Q)

Total Revenue and Cost (1)
Cost and Profit Total Cost (TC) Profit Max Revenue Max Total Revenue (TR) Max Profit Min Profit Q2 Q1 Q4 Q3 Output (Q) Total Profit

Total Revenue and Cost under Perfect Competition
Cost and Profit Total Cost (TC) Total Revenue (TR) Break Even TR=TC Q1 Q2 Output (Q)

Multi Choice Questions on This
Revenue Cost and Profit Total Cost (TC) Total Revenue (TR) G C F B A D E H Output (Q)

Total Revenue with a Perfectly Elastic Demand Curve
Cost and Profit Total Revenue (TR) £6 Average Revenue (AR) = Marginal Revenue (MR) £3 1 2 Output (Q)

Total Revenue with a downward sloping demand curve
Cost and Profit Total Revenue (TR) Average Revenue (Demand) AR Marginal Revenue (MR) Output (Q)

Total Revenue with a downward sloping demand curve
Cost and Profit Total Revenue is maximised when MR = 0 Total Revenue (TR) Price elasticity of demand = 1 at this output Average Revenue (Demand) AR Marginal Revenue (MR) Output (Q)

Demand Curves with Different Elasticity and Total Revenue
Market A Market B Price Higher revenue from reducing the price from Pa to Pb (the gain in quantity sold more than offsets the lower price per unit) Price Demand in segment B of the market is relatively inelastic. A higher unit price is charged and total revenue also increases Pb Pa Pa Pb ARa ARb Qa Qb Quantity Qb Qa Quantity

Profit Maximisation and Sales Revenue Max
Costs Profit Max at Price P1 Revenue Max at Price P2 SRAC P1 MC P2 AC1 AC2 AR (Demand) Q1 Q2 Output (Q) MR

Contestable Markets and The Conduct of Firms
Costs Revenues SRAC P1 MC Normal Profit output where AC=AR Profit Max at Price P1 P2 AR (Monopoly) MR Q1 Q2 Output (Q)

The Kinked Demand Curve
Costs Revenues Raising price above P1 Demand is relatively elastic Firm loses market share and some total revenue Assume we start out at P1 and Q1: Will a firm benefit from raising price above P1? Will it benefit from cutting price below P1? MC1 P1 Reducing price below P1 Demand is relatively inelastic Little gain in market share – other firms have followed suit Total revenue may still fall AR Q1 Output (Q) MR

The Kinked Demand Curve – Rising MC
Costs Revenues MC1 P1 AR Q1 Output (Q) MR

The Kinked Demand Curve – Rising MC
Costs Revenues MC3 MC2 P2 MC1 P1 AR Q2 Q1 Output (Q) MR

Introduction to Game Theory
Two prisoners are held in a separate room and cannot communicate They are both suspected of a crime They can either confess or they can deny the crime Payoffs shown in the matrix are years in prison from their chosen course of action Decisions made under uncertainty Prisoner A Confess Deny Prisoner B (3 years, 3 years) (1 year, 10 years) (10 years, 1 year) (2 years, 2 years)

Introduction to Game Theory (2)
The equilibrium in the Prisoners’ Dilemma occurs when each player takes the best possible action for themselves given the action of the other player The dominant strategy is each prisoners’ unique best strategy regardless of the other players’ action Best strategy? Confess? A bad outcome – prisoners could do better by both denying – but once collusion sets in, each prisoner has an incentive to cheat! Prisoner A Confess Deny Prisoner B (3 years, 3 years) (1 year, 10 years) (10 years, 1 year) (2 years, 2 years)

Price Fixing Cartels Individual Firm Industry MC MC (industry) AC
Demand MR Firms Output Industry Output

Price Fixing Cartels Individual Firm Industry MC P(cartel) AC
MC (industry) AC Demand MR Quota Firms Output Industry Output

Allocative Efficiency
Costs Revenues MC (Supply) Consumer Surplus (CS) P1 Producer Surplus (PS) AR (Demand) Q1 Output (Q)

Natural Monopoly and Efficiency
Costs Revenues P1 Profit Maximisation AC1 Long Run Average Cost (LRAC) Long Run Marginal Cost (LRMC) AR (Demand) MR Q1 Output (Q) Q2

Natural Monopoly and Efficiency
Cost per Unit Long Run Average Cost (LRAC) Constant returns to scale Minimum Efficient Scale Output (Q)

Price Discrimination (1st Degree)
Price (P) P1 P2 Equilibrium output with perfect price discrimination – the monopolist will sell an extra unit providing that the next unit adds as much to revenue as it does to cost P3 P4 AC = MC P5 AR (Market Demand) MR Q1 Q2 Q3 Q4 Q5 Quantity of Output (Q)

Peak and Off Peak Pricing
Price (P) and Costs Supply (Marginal Cost) Price Peak Price Off-Peak Peak Demand MR Peak Off-Peak Demand MR Off-Peak Output Off-Peak Output Peak Output

Price Discrimination (1)
Market A Market B Price Profit from selling to market A – with a relatively elastic demand – and charging a lower price Price Demand in segment B of the market is relatively inelastic. A higher unit price is charged Pb Pa MC=AC MC=AC ARa MRa MRb ARb Qa Quantity Qb Quantity

Perfect Competition (1)
Market Demand and Supply Individual Firm’s Costs and Revenues Price (P) Price (P) MC (Supply) Market Supply AR (Demand) = MR P1 P1 AC AC1 Market Demand Q1 Output (Q) Q2 Output (Q)

Perfect Competition – Sub Normal Profits
Market Demand and Supply Individual Firm’s Costs and Revenues Price (P) Price (P) MC Market Supply AC AC1 AR = MR P1 Market Demand Q1 Output (Q) Q2 Output (Q)

Perfect Competition (2) Increase in Market Supply
Market Demand and Supply Individual Firm’s Costs and Revenues Price (P) Price (P) MC (Supply) Market Supply AR1 = MR1 P1 P1 MS2 AC P2 P2 P2 AR2 = MR2 Market Demand Q1 Q2 Output (Q) Q3 Output (Q)

Comparing Monopoly with Perfect Competition
Competitive Market Pure Monopoly Price (P) Price (P) Market Supply Market Supply P mon Net loss of producer surplus P comp Market Demand Monopoly Demand MR Q1 Q2 Q1 Output (Q)

Welfare Loss Under Pure Monopoly
Competitive Market Pure Monopoly Price (P) Price (P) Market Supply Market Supply A Net loss of consumer surplus P mon D B Net loss of producer surplus P comp C Market Demand Monopoly Demand MR Q1 Q2 Q1 Output (Q)

Pure Monopoly and Scale Economies
Competitive Market Pure Monopoly Price (P) Price (P) Market Supply Competitive Supply (MC) Monopoly Supply with Scale Economies P comp P mon Market Demand Monopoly Demand MR Q1 Q1 Q2 Output (Q)

Profit Maximisation and a Rise in Demand
Costs Profit Max at Price P2 Profit Max at Price P1 SRAC P2 P1 MC AC1 AC2 AR2 AR1 (Demand) MR2 Q1 Q2 Output (Q) MR1

Minimum Efficient Scale (MES)
Cost per unit in the long run LRAC Falling LRAC – Economies of Scale (Increasing Returns to Scale) Rising LRAC – Diseconomies of Scale (Decreasing Returns to Scale) MES Output (Q)

Minimum Efficient Scale (MES) and Market Size
Costs per unit in the long run (ATC) LRAC1 LRAC2 LRAC3 MES1 MES2 Output (Q) MES3

Loss of Social Welfare from Externalities
Benefits Costs Social Equilibrium Marginal Social Cost a c b Marginal Private Cost P1 Deadweight loss of economic welfare Demand (Private Marginal Benefit) = Social Marginal Benefit (SMB) Marginal External Cost Q2 Q1 Quantity of Output (Q)

Demand + External Benefits
Merit Goods Costs Benefits A Supply External Benefit B Demand + External Benefits Private Demand Qp Qs Quantity of Housing

Merit Goods and Welfare Loss
Costs Benefits Welfare loss where SMB>PMB above output Qp A PMC = SMC External Benefit C B SMB PMB Qp Qs Output (Q)

Costs Benefits Value 2 Value 1 Value 1 Demand from A Demand from B Q1 Output (Q)

Costs Benefits Demand A+B Value 2 Value 1 Value 1 Demand A Demand B Q1 Output (Q)

Socially Efficient Provision of Public Goods
Costs Benefits Demand A+B Marginal Social Cost (MSC) Demand A Demand B Qp Output (Q)

Costs Benefits SMC External Cost PMC Net Welfare Loss Marginal External Cost PMB = SMB Qs Qp Output (Q)

Negative Externalities – Pollution Tax
Costs Benefits SMC PMC + TAX PMC PMB = SMB Qs Qp Output (Q)

De-Merit Goods and Health Awareness
Price Marginal Social Cost Marginal Private Cost P1 Demand (Limited Information) Demand (Full Information) Q3 Q2 Q1 Quantity

Price Supply P5 P4 P3 P2 P1 Q1 Q2 Q3 Q4 Q5 Quantity

Macroeconomics Diagrams for IB Economics

How interest rates affect us
Market interest rates e.g. savings rates & credit cards Domestic Demand i.e. C + I + G Aggregate Demand AD Drives short-term Economic growth Asset prices e.g. house prices Domestic inflationary Pressure i.e. changes in the output gap (actual GDP relative to potential GDP) Official Interest Rate Set by the MPC Net External Demand i.e. X - M Expectations and Confidence Businesses & consumers Import Prices Consumer Price Inflation Exchange rate

Aggregate Demand and Supply Analysis

Aggregate Demand and Supply
General Price Level A B AD Real National Income

General Price Level SRAS2 SRAS2 A P1 B P2 AD Y1 Y2 Real National Income

LRAS General Price Level Pe SRAS AD Ye Yfc National Income

Negative Output Gap LRAS General Price Level Pe P2 SRAS AD1 AD2 Y2 Ye
Yfc National Income

AD-AS Analysis Causes of Deflation
Fall in AD Rise in LRAS greater than increase in AD LRAS LRAS1 LRAS2 General Price Level General Price Level P1 P1 P2 P2 SRAS SRAS AD1 AD1 AD2 AD2 Y2 Y1 Yfc Y1 Y2 YFC2 Real National Income

LRAS1 LRAS2 General Price Level P1 P2 SRAS AD1 AD2 Y1 Y2 YFC2

An Increase in Long Run Aggregate Supply
LRAS1 LRAS2 General Price Level Pe SRAS AD2 AD1 Y1 Y1 YFC2 National Income

An Increase in Long Run Aggregate Supply
LRAS1 LRAS2 General Price Level SRAS1 SRAS2 YFC1 YFC2 Real National Income

General Price Level LRAS P2 P1 SRAS2 SRAS1 AD Y2 Y1 Yfc National Income

Shifts in Aggregate Demand
General Price Level LRAS P2 P1 P3 AD2 SRAS AD1 AD3 Y3 Y1 Y2 Yfc National Income

The Risk of Demand Pull Inflation
General Price Level LRAS P3 P2 P1 AD3 SRAS AD2 AD1 Y1 Y2 Yfc Real National Income

External Shock – Higher Oil Prices and a Tightening of Monetary Policy
LRAS General Price Level P2 P1 SRAS2 SRAS1 AD1 AD2 Y3 Y2 Y1 Yfc Real National Income

Shifts in Short Run Aggregate Supply
LRAS General Price Level P2 P1 SRAS2 SRAS1 SRAS3 AD Y2 Y1 Y3 Yfc National Income

An Increase in Aggregate Demand
General Price Level LRAS P2 P1 AD2 SRAS AD1 Y1 Y2 Yfc National Income

A Fall in Aggregate Demand
LRAS General Price Level P1 P2 AD1 SRAS AD2 Y2 Y1 Yfc National Income

e.g. savings rates & credit cards
Market interest rates e.g. savings rates & credit cards Domestic Demand i.e. C + I + G Aggregate Demand AD Drives short-term Economic growth Asset prices e.g. house prices Domestic inflationary Pressure i.e. changes in the output gap (actual GDP relative to potential GDP) Official Interest Rate Set by the MPC Net External Demand i.e. X - M Expectations and Confidence Businesses & consumers Import Prices Consumer Price Inflation Exchange rate

Short Run Phillips Curve
Wage Inflation (%) P3 P2 P1 Short Run Phillips Curve U3 U2 U1 Unemployment Rate (%)

Expectations-Augmented Phillips Curve
Wage Inflation (%) P3 P2 SRPC2 P1 SRPC1 SRPC3 U3 U2 U1 Unemployment Rate (%)

Individual Labour Supply Curve
Real Wage Rate Individual Labour Supply (2) Individual Labour Supply (1) Hours of Work Supplied (LS) L1 L3 L2

The Supply of Labour An Outward Shift in Labour Demand when Labour Supply is Elastic An Outward Shift in Labour Demand when Labour Supply is Inelastic Wage Rate Wage Rate Labour Supply (short run) LS b W2 a W2 W1 c Long Run Labour Supply W3 W1 LD2 D2 LD1 D1 E1 E2 Employment E1 E2 E3 Employment

The Supply of Labour Wage Rate Labour Supply (short run) b W2 a W1 c
Long Run Labour Supply W3 D2 D1 E1 E2 E3 Employment

Natural Rate of Unemployment
Real Wage Rate Labour Supply Labour Force a b W1 Labour Demand E1 E2 Employment

Reducing the Natural Rate of Unemployment
Real Wage Rate LS1 LS2 Labour Force a c b W1 Labour Demand E1 E3 E2 Employment

Union Control of Labour Supply
Wage Rate Wage Rate Labour Supply (union controlled) Labour Supply (union controlled) W2 W2 W1 W1 Labour Supply to the Economy Labour Demand Labour Demand E2 E1 Employment E2 E1 Employment

Flexible Employment Patterns
Agency Staff (Temp Workers) Workers with Job Share Agreements Core Group of Workers (Permanent Staff) Short Term Contract Workers Trainees on Government Employment Projects Sub-Contracted Work

National Minimum Wage Wage Rate (W) Labour Supply W min
Minimum Wage (Wage Floor) W1 Demand = MRPL Q3 Q2 Q1 Employment of Labour (E)

Monopsony Buyer of Labour
Wage Rate (W) Marginal Cost of Labour (MCL) MRPL Labour Supply (ACL) Wq Demand = MRPL Eq Employment of Labour (E)

Monopsony Buyer of Labour
Wage Rate (W) Marginal Cost of Labour (MCL) W4 W3 W2 Labour Supply (ACL) W1 Demand = MRPL E4 E3 E2 E1 Employment of Labour (E)

Monopsony Buyer of Labour with a NMW
Wage Rate (W) Marginal Cost with NMW Labour Supply (ACL) MRPL NMW National Minimum Wage Wq Demand = MRPL Eq E2 Employment of Labour (E)

Monopoly and Profit Margins
Economic Profit (Price > AC) Total Cost (AC x Output) Price Price P2 AC P2 AC Demand AC AC Demand Q2 Q2

International Trade Diagrams

International Trade and Production Possibility Frontiers
Freezers PPF FOR THE UK Freezers PPF FOR ITALY 2000 1600 1000 500 1000 200 400 Dishwashers Dishwashers

PPF FOR GERMANY PPF FOR FRANCE Good Y Good Y 2000 1500 1500 1500 Good S Good S

PPF FOR the UNITED STATES PPF FOR CANADA Good W Good W 1000 750 250 500 Good X Good X

3000 PPF FOR THE UK PPF FOR ITALY Freezers Freezers 2000 1600 1000 500 1000 200 400 533 Dishwashers Dishwashers

Import Tariffs Price Domestic Supply World Price + Tariff Pw + T M
Domestic Demand Qs Qs2 Qd2 Qd Output (Q)

PPFs and Other Diagrams

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