Economics Masterclass: The 3 Micro Diagrams That Guarantee Extra Marks (CIE 9708)
Updated: Sep 2
If macro diagrams are about shifting AD and AS curves, micro diagrams are a completely different beast. They require you to draw multiple curves on the same axis and identify specific areas like welfare loss triangles or supernormal profit rectangles.
Most students avoid them because they seem intimidating. But here is the secret: the examiners award up to 4 marks just for a correctly labeled diagram. That is 20% of a 20-mark essay, for free.
1. 🔺 The Negative Externality Diagram (Welfare Loss Triangle)
When to use it: Any question about market failure, pollution, negative externalities, or government taxation.
What you must draw:
Three curves: MPB (= MSB), MPC, and MSC.
MSC sits above MPC: the vertical gap is the marginal external cost.
The free market equilibrium is at Qmkt (where MPC = MPB).
The socially optimal output is at Qopt (where MSC = MSB).
The deadweight welfare loss triangle sits between Qopt and Qmkt, bounded by MSC and MPB.
Key phrase for the exam: *"The market over-produces by (Qmkt - Qopt) units because producers fail to internalise the external cost."*
2. 📊 The Monopoly Diagram (Supernormal Profit)
When to use it: Any question about monopoly, market structure, contestability, or price regulation.
What you must draw:
Four curves: AR (Demand), MR, MC, and AC.
MR lies below AR (because the monopolist must lower price to sell more).
Profit max at MC = MR → read price off AR curve → read cost off AC curve.
The supernormal profit rectangle sits between the AR price and the AC cost at Qm.
Key phrase for the exam: *"The monopolist restricts output to Qm where MC = MR, charging Pm which exceeds AC, earning supernormal profit shown by the shaded area."*
3. ⚖️ The Tax/Subsidy Incidence Diagram
When to use it: Any question about indirect taxation, subsidies, government intervention, or PED.
What you must draw:
Original supply (S1) and demand (D) curves.
New supply curve (S2) shifted up by the tax amount (or down for a subsidy).
The tax incidence split between consumer and producer depends on PED/PES.
If demand is inelastic, consumers bear more of the tax burden.
Key phrase for the exam: *"The incidence of the tax falls disproportionately on consumers because demand is price inelastic."*
🎯 Want These Diagrams Drawn to Perfection?
Knowing what to draw is step one. But can you draw them accurately, with perfect labels, under timed exam conditions?
These are on the portal for free, with the welfare loss triangle drawn out, with the model answer that uses it. There is no payment and no account. Open the free notes.
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