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MICROECONOMICS

The microeconomics graph cheatsheet

Every graph you need for introductory microeconomics, on one page. Look at the picture, read the one-line rule, then draw it yourself.

Demand / ATCSupply / MCNew curve after a shiftPolicy line / loss

Draw any graph in 5 steps

Use this order every time. Most graphing errors come from skipping steps 1, 3 or 5.

1Axes
Price (or $) up the side, Quantity along the bottom. Label both.
2Curves
Draw and name every curve: D, S, D₁, D₂, MC, ATC…
3Starting point
Mark E₁ and drop dashed lines to P₁ and Q₁.
4The change
Draw the new curve (D₂) and an arrow showing the shift.
5The result
Mark E₂, P₂, Q₂ — and shade any area you mention.

FoundationsReading graphs & the PPF

Slopes, intercepts, opportunity cost and trade.

Anatomy of a straight line

Slope = rise ÷ run = 3 ÷ 4 = 0.75. The intercept is where the line meets the vertical axis.

Equation form: y = intercept + slope × x

Three slopes to recognize

Up and to the right = positive (variables move together). Down to the right = negative (they move opposite).

Supply slopes up. Demand slopes down.

PPF — constant opportunity cost

On the line = resources fully and efficiently used. Inside = idle or wasted resources. Outside = not possible with today's resources and technology.

Straight PPF → |slope| = opportunity cost of 1 pizza (in coffee), the same everywhere

PPF — increasing opportunity cost

Each extra pizza costs more coffee, because the resources moved last are the least suited to pizza.

Bowed-out PPF = low-hanging fruit principle

Economic growth — the PPF shifts out

More resources (workers, capital) or better technology let the economy produce more of both goods.

Points outside PPF₁ become attainable

Biased shift — new tech for one good

A better pizza oven moves only the pizza intercept. The coffee intercept stays put.

Ask: which intercept actually changed?

Comparative advantage & gains from trade

Specialize in the good with the lower opportunity cost, trade for the other at a price between the two traders’ opportunity costs, and consume at T — outside your own PPF.

Opportunity cost of X = what you give up ÷ what you gain

MarketsSupply, demand & elasticity

The single most important question: did the good's own price change, or did something else?

Movement along demand

Only the good's own price changed. Same curve, new point. This is a change in quantity demanded.

Price ↓ → Qd ↑ (law of demand)

Shift of demand

Something other than price changed, so at every price people want a different amount. This is a change in demand.

Demand shifters: income · tastes · prices of substitutes & complements · expectations · number of buyers

Shift of supply

Higher input costs (e.g., a tax on raw materials) shift supply left: less is offered at every price.

Supply shifters: input prices · technology · number of sellers · expectations · prices of other goods the firm could make · taxes & subsidies. Left = decrease, even though it looks “up”.

The four single shifts

Demand ↑

P ↑ Q ↑

Demand ↓

P ↓ Q ↓

Supply ↑

P ↓ Q ↑

Supply ↓

P ↑ Q ↓

Draw the old curve, the new curve, an arrow between them, and label E₁ and E₂

Equilibrium

Where D meets S, quantity demanded equals quantity supplied. Above P* there is a surplus; below P* there is a shortage.

Always label P* and Q* on the axes

Both curves shift at once

Demand ↑ and supply ↓ both push price up — certain. They push quantity in opposite directions, so Q₂ is indeterminate: it lies between the supply-only and demand-only outcomes (yellow band).

Agree → certain · Disagree → “?” (depends on size of shifts)

Double-shift cheat table

Demand	Supply	Price	Quantity
↑	↑	?	↑
↑	↓	↑	?
↓	↑	↓	?
↓	↓	?	↓

Work out each shift on its own, then combine. One variable is always certain; the other is always “?”.

On the graph, mark the possible range for the “?” variable

Price ceiling (set below P*)

Buyers want Qd, sellers make only Qs. The amount actually traded falls to Qs, and non-price rationing (queues, waitlists) takes over.

Binding only if below equilibrium — e.g., rent control

Price floor (set above P*)

Sellers offer Qs, buyers take only Qd. Unsold output piles up — in the labour market, that surplus is unemployment.

Binding only if above equilibrium — e.g., minimum wage

Total revenue test

TR is the shaded rectangle. On a straight-line demand curve, the top half is elastic and the bottom half is inelastic.

P and TR move opposite → elastic · same way → inelastic · TR unchanged → unit elastic

Elasticity at a glance

Perfectly inelastic

E = 0 · Q never changes

Perfectly elastic

E = ∞ · any price rise → Q = 0

Relatively elastic

|E| > 1 · flatter · many substitutes

Relatively inelastic

|E| < 1 · steeper · necessities

Midpoint formula: E = %ΔQ ÷ %ΔP = (ΔQ ÷ avg Q) ÷ (ΔP ÷ avg P). Careful: slope is not elasticity — “flatter = more elastic” only holds when comparing curves at the same point.

Welfare & firmsSurplus, taxes & cost curves

Areas on the graph = dollars. Know which triangle is which.

Consumer & producer surplus

CS = area below demand, above price. PS = area above supply, below price. Total surplus is largest at equilibrium.

Triangle area = ½ × base × height

Per-unit tax on sellers & deadweight loss

The tax is the vertical gap between S₂ and S₁. Buyers pay more (Pb), sellers keep less (Ps), and fewer units trade. The red triangle is surplus lost to everyone.

For the same tax, more elastic demand or supply → bigger deadweight loss

Short-run cost curves

MC falls at first, then rises because of diminishing marginal returns. It cuts AVC and ATC at their minimum points. The gap ATC − AVC = AFC, which shrinks as Q grows.

MC below average → average falls · MC above → average rises

Competitive firm: how much to produce

Produce where P = MC (on the rising part of MC). Profit = (P − ATC at Q*) × Q*. If P falls below min AVC, shut down. The bold MC above min AVC is the firm's supply curve.

P > min ATC → profit · min AVC < P < min ATC → loss, but keep producing (short run) · P < min AVC → shut down

Common graphing mistakes

Seen again and again in student work. Check your graph against this list before you submit.

Moving along a curve when something other than price changed (that's a shift).
Shifting a curve when only the good's own price changed (that's a movement).
Forgetting P₁ / Q₁ labels on the axes.
Shifting supply down/right for a decrease. A decrease in supply shifts the curve left (which looks “up”).
Not marking the possible range when one variable is indeterminate.
Under a price ceiling, reporting Qd as the amount sold. The quantity actually traded is the smaller of Qd and Qs.
Stating the Total Revenue Test for only one case (state elastic and inelastic).
Computing profit with minimum ATC instead of ATC at Q*.