Diagrams account for up to 30% of your H2 Economics essay marks. Yet most students treat them as an afterthought — hastily sketched, poorly labelled, and disconnected from their written analysis. This guide covers every essential diagram and the common mistakes that cost marks.
Why diagrams matter so much
Cambridge examiners use diagrams as a quick signal of economic understanding. A well-drawn diagram with correct labels tells the examiner you understand the underlying model — even before they read your explanation. Conversely, a missing or incorrect diagram can cap your marks regardless of how strong your prose is.
The key principle: every diagram must be referenced in your written answer. Draw it, label it, and then explain what it shows in your text. An orphaned diagram earns no marks.
Demand and supply diagrams
The foundation of microeconomics. You will use demand-supply diagrams for market equilibrium, price controls, taxation, subsidies, and trade analysis.
Essential elements
- Axes: Always label Price (P) on the vertical axis and Quantity (Q) on the horizontal axis
- Curves: Demand (D) slopes downward, Supply (S) slopes upward. Label each curve at the end
- Equilibrium: Mark the intersection point and draw dotted lines to both axes, labelling P₀ and Q₀
- Shifts: When showing a shift, draw the new curve (D₁ or S₁), mark the new equilibrium (P₁, Q₁), and use arrows to show direction of change
Common mistake: Drawing curves that cross the axes. Demand curves should not touch the quantity axis, and supply curves should not start from the origin unless specifically modelling a perfectly competitive firm.
Market failure diagrams
Market failure questions appear in almost every A-Level paper. You need diagrams for externalities, public goods, and merit/demerit goods.
Negative externalities
- Draw MPC (Marginal Private Cost) and MSC (Marginal Social Cost) curves, with MSC above MPC
- The vertical distance between MPC and MSC represents the external cost (MEC)
- Show the market quantity (Qm) where MPC = MPB, and the socially optimal quantity (Qs) where MSC = MSB
- Shade the deadweight loss triangle between Qm and Qs
Positive externalities
- Draw MPB (Marginal Private Benefit) and MSB (Marginal Social Benefit) curves, with MSB above MPB
- The market under-produces at Qm; the socially optimal output is at Qs where MSB = MSC
- Shade the deadweight loss of under-consumption
Common mistake: Forgetting to label which curve is which. Without clear labels, the examiner cannot award marks for diagram accuracy.
AD-AS diagrams
Aggregate Demand – Aggregate Supply diagrams are essential for macroeconomic policy questions, inflation analysis, and economic growth.
Key variations
- Keynesian AS: Three distinct regions — horizontal (spare capacity), upward-sloping (approaching full employment), vertical (full employment). Use this for demand-side policy analysis
- Classical AS: Vertical LRAS at full employment output (Yf). Use this for supply-side policy analysis
- Demand-pull inflation: Show AD shifting right along an upward-sloping AS, with the general price level rising from GPL₀ to GPL₁
- Cost-push inflation: Show AS shifting left, with GPL rising and real GDP falling (stagflation)
Pro tip: Always label your axes as General Price Level (GPL) and Real GDP — not just “P” and “Y”. Full labels signal precision to examiners.
Exchange rate diagrams
For international trade and exchange rate policy questions, you need the forex market diagram.
- Axes: Exchange rate (price of domestic currency in foreign currency) on the vertical axis, Quantity of domestic currency on the horizontal axis
- Demand for SGD: Downward-sloping (foreigners buying Singapore exports need SGD)
- Supply of SGD: Upward-sloping (Singaporeans buying imports supply SGD to the forex market)
- Appreciation: Show demand shifting right or supply shifting left — equilibrium exchange rate rises
- Managed float: For Singapore’s context, show MAS intervention as a band around the equilibrium
Balance of payments
While not always requiring a diagram, the J-curve effect for Marshall-Lerner condition questions needs a specific illustration:
- Draw time on the horizontal axis and current account balance on the vertical
- Show the initial worsening of the current account after depreciation (price effect dominates)
- Then show the eventual improvement as volume effects kick in (the “J” shape)
Phillips Curve
For questions linking unemployment and inflation:
- Short-run Phillips Curve (SRPC): Downward-sloping, showing the trade-off between inflation and unemployment
- Long-run Phillips Curve (LRPC): Vertical at the natural rate of unemployment
- Show how expansionary policy moves the economy along the SRPC, and how expectations adjustment shifts the SRPC upward over time
Five rules for exam-ready diagrams
- Title every diagram — e.g., “Figure 1: Market for healthcare with positive externalities”
- Label both axes fully — not just letters, but what they represent
- Use a ruler — straight lines signal care and precision
- Show the change — arrows, shading, and clear before/after labels
- Reference in text — write “As shown in Figure 1…” to connect diagram to analysis
At A-Worthy, our CASE Method teaches students to Comprehend the question, Analyse with diagrams and theory, Structure their response logically, and Evaluate with real-world context. Diagrams are central to the “Analyse” step — and with systematic practice, they become second nature.