Lesson preview · Answering like an economist
Diagram precision: label everything, one curve per cause
~8 min · Free to read
In 2025, one national economics exam asked for a demand diagram showing the effect of a rise in the price of water bottles. The examiners’ report says many students shifted the demand curve: they moved the whole line. But a change in a good’s own price doesn’t shift its demand curve. Buyers slide along the curve they already have and buy fewer bottles.
The same report warned against abbreviations on the axes: write “Price”, not P, and “Quantity”, not Q. A marker can only mark what is on the page.
Imagine frost destroys part of a coffee crop. Growers have less to sell at every price: supply shifts left and the price rises. Coffee drinkers buy less, but their tastes haven’t changed, so they move along their demand curve. That is the rule: one curve per cause. A second shift needs a second cause, such as a health report about coffee that month.
One policy can move two curves if it changes two things. A healthy-eating plan might pay apple growers a subsidy per crate and run fruit adverts. The subsidy cuts growers’ costs, so supply shifts right. The adverts make buyers want more, so demand shifts right too.
Key Term
The diagram checklist
- Label both axes in words, such as “Price” and “Quantity”. Some examiners ask for words, not P and Q, so words are safer.
- Label every curve, new ones too. A curve that shifts gets a new name, such as S₂ or S + subsidy.
- Mark the old and new equilibrium, where the curves cross: E₁ at P₁ and Q₁, then E₂ at P₂ and Q₂.
- Move one curve per cause. A policy that changes two things may move two.
- Keep long-run aggregate supply (LRAS) on aggregate demand and aggregate supply (AD–AS) diagrams, even when it doesn’t move. These diagrams show the whole economy, so the axes are “Price level” (the average of all prices) and “Real GDP” (real gross domestic product: total output, adjusted for inflation). Aggregate demand (AD) is total spending. Short-run aggregate supply (SRAS) is what firms make at each price level. In the standard diagram, LRAS is a vertical line at full-capacity output. The Macroeconomics course teaches AD–AS in full; here you need only the labels.
- Call the currency axis the exchange rate (one currency’s price in another), never plain “Price”. Name the currencies if you can, such as “Exchange rate (euros per dollar)”.
- On externality diagrams, label the private and the social curve. An externality is a side effect, good or bad, on people outside the deal. When a factory’s smoke harms its neighbours, supply is marginal private cost (MPC: what one more unit costs the firm). Marginal social cost (MSC) adds the harm that unit does to others. Demand is marginal social benefit (MSB: one more unit’s worth to society), since using the good affects no one else. Mark the market quantity (Qm) and the socially optimal quantity (Qopt: the amount best for society).
- Shade and name any area you write about, such as a deadweight loss: value lost because the market gets the amount wrong. It comes from units that cost society more than they are worth, or from worthwhile units never made.
One cause, one curve: the subsidy moved supply alone, and the new line got its own name. Two lines both called S leave the marker guessing. On paper, also draw dashed lines from E₁ and E₂ to both axes, and mark P₁, P₂, Q₁ and Q₂.
The market failure (the market getting the amount wrong) is the gap between Qm and Qopt. Without Qopt, the diagram no longer shows the problem.
Long-run aggregate supply didn’t move, but it still belongs on the diagram. It shows that output has fallen below its full-capacity level.
In a currency market the price has its own name, so the axis says “Exchange rate”. Here it rose: the currency appreciated (gained value). On paper, label the old equilibrium E₁ too.
At the floor, sellers offer the quantity supplied (Qs), but buyers want only the quantity demanded (Qd). The surplus (goods left unsold) is the gap between them, so a diagram that labels only one quantity can’t show it.
Trap · Common Misconception
"Buyers react too, so demand must move"
When a subsidy cuts the price, buyers do buy more. But their wants haven’t changed, so they move along the demand curve. Before you shift any curve, name its cause. No cause, no shift.
Tip
More practice on live diagrams
Each Draw the graph page pairs a short story with a live diagram. Drag only the curves the story moves. Try frost hits coffee, a solar subsidy, falling confidence and rising exports.
Check yourself · no marks
In the same month, a health report praises oat milk and a new factory cuts the cost of making it. Which curves move, and how should you label them?
Commit to one first. Guessing and being wrong beats reading the answer cold.
Practice · 1 / 4
Which of these should move two curves on a supply-and-demand diagram of the market for sugary drinks?
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