Drawing Graphs and Writing Cause-and-Effect Explanations: Exam Skills Guide (Microeconomics)

How to use this guide

This guide is for students revising the whole course for the free-response section. It trains four habits: labelled graphs, paired firm and market graphs, cause-and-effect chains and set-out calculations.

Every example and task here is original Marlbridge practice, not past exam material, and all data are fictional. The marks shown are a suggested Marlbridge rubric to help you judge your own answers; they are not official scoring. For what each task verb asks for, read the companion task verbs guide.

The free-response section at a glance

Feature	Detail
Questions	3: one long (10 points, 50% of the section score) and two short (5 points each, 25% each)
Time	60 minutes, including a 10-minute reading period
Share of the exam score	33.35%
Format	Viewed in the Bluebook app; answers handwritten in a paper booklet
Calculator	Four-function, allowed on both sections

The course framework splits free-response points into four kinds of task:

Task	Share of free-response points
Drawing graphs or visuals, and showing a situation or change on them	30–50%
Explaining concepts, outcomes or effects	25–35%
Numerical analysis and calculations	15–30%
Making assertions (short statements of a result)	10–20%

Drawing has the widest range, up to half the points, and only this section tests it.

Drawing a correctly labelled graph

A reader marks what you label, not what you meant.

Element	What to write
Axes	Price (or Wage, or Price and cost) up the side; Quantity (or Quantity of labour) along the bottom
Curves	A label on every curve: D, S, MC, ATC, AVC, MR, MRP, MFC, MSB, MSC
Equilibrium	The crossing point, with dashed lines to both axes labelled P₁ and Q₁
Shift	A new curve (S₂ or D₂), an arrow from old to new, and the new values P₂ and Q₂
Shaded area	A shaded or hatched region with a label such as “DWL” or “profit”

Each shaded area has a fixed shape:

Area	Where it lies
Consumer surplus	Below demand, above the price buyers pay, up to the quantity traded
Producer surplus	Above supply, below the price sellers receive, up to the quantity traded
Deadweight loss	Triangle between demand (or MSB) and supply (or MSC) over the units that should be traded but are not
Tax revenue	Rectangle: tax per unit × quantity after the tax
Profit or loss	Rectangle: gap between P and ATC at the chosen output × that output

Draw or only read? Total cost curves, externalities under imperfect competition and the Lorenz curve are given to you to read; the other core models you must draw.

Side-by-side firm and market graphs

A price-taking firm accepts the price the market sets. Show this with two graphs next to each other.

• Left, the market: D and S cross at P₁ and Q₁ (capital Q).
• Right, the firm: the same price scale; a horizontal line at P₁ labelled P = MR = d; MC and ATC (and AVC if asked); output q₁ where MC = MR (lower-case q).
• A dashed line carries P₁ across from the market to the firm.
• After a change, shift the market curve with an arrow, mark P₂ on both graphs and move the firm’s MR line to P₂. Firm output moves along MC.

In a competitive labour market the firm faces W = MFC = S and hires where MRP = MFC.

A monopoly needs one graph. Draw MR below demand, find Q where MR = MC, then go up to demand to read the price. Deadweight loss is the triangle between demand and MC, from the monopoly output to the output where P = MC.

Writing cause-and-effect chains

An explanation is a chain. Each link names a cause and its effect, with a direction.

[Change] → [which curve shifts, which way] → [price and quantity, which way] → [the variable asked about, which way]

Example: “Steel, an input, gets dearer. Car makers’ costs rise, so the supply of cars shifts left. At the old price there is a shortage, so the price of cars rises and the quantity traded falls.”

• Name the curve and the market. “Demand for cars shifts right”, not “demand goes up”.
• Separate shifts from movements. A change in the good’s own price moves you along a curve; anything else shifts it.
• End on the question’s variable. If asked about total revenue, finish with “so total revenue rises”.

Avoid affects or changes without a direction.

Calculations with the steps shown

Every time: write the rule, put in the numbers with units, give the answer with its unit.

Calculation	Rule to write down
Price elasticity of demand (midpoint)	% change in Qd ÷ % change in P, each change divided by the average of the two values
Surplus or deadweight-loss triangle	½ × base × height
Tax revenue	tax per unit × quantity after the tax
Profit or loss	(P − ATC) × q
Profit-maximising output	produce each unit while MR ≥ MC
Hiring	hire while MRP ≥ MFC; MRP = MP × P for a competitive seller
Consumer choice	buy the next unit with the highest MU ÷ P

Identify, explain and calculate: three different answers

Verb	What to give	Example
Identify (or what, which, will)	The result only	“The price rises.”
Explain	How or why, as a chain of reasons	“Costs rise, so supply shifts left, creating a shortage at the old price, so the price rises.”
Calculate	The working and the final value	“Profit = ($28 − $20) × 400 = $3,200.”
Draw, show or label	A graph with every axis and curve labelled, and arrows for changes	Figure 1

A reason added to an identify answer earns nothing; a missing reason in an explain answer loses the point.

Worked example 1: a per-unit tax (Unit 2)

Question. In Tarlow, demand for notebooks is Qd = 150 − 5P and supply is Qs = 2.5P (Q in thousands per week, P in dollars). A $6 per-unit tax is placed on sellers. (a) Draw a correctly labelled graph of the tax and shade the deadweight loss. (b) Calculate the tax revenue and the deadweight loss. (c) Explain why buyers bear less of the tax than sellers. (5 points)

Weak answer. “(a) [S and D, a second S curve, unlabelled shading.] (b) Revenue = 6 × 50 = 300. (c) Because demand is elastic.”

What it misses. No axis labels, arrow or new values. Revenue uses the old quantity. Part (c) never compares the two elasticities.

Strong answer.

(a) Figure 1: labelled axes, S₁ shifts up by $6 to S₂ (arrow), E₂ at a buyers’ price of $22 and 40 thousand, deadweight loss hatched.

(b) Before the tax, 150 − 5P = 2.5P, so P = $20 and Q = 50 thousand. With the tax, 150 − 5P = 2.5(P − 6): buyers pay $22, sellers keep $16, Q = 40 thousand. Tax revenue = $6 × 40 thousand = $240 thousand per week. Deadweight loss = ½ × $6 × (50 − 40) thousand = $30 thousand per week.

(c) Buyers pay $2 more; sellers keep $4 less. At the starting point demand is more elastic than supply (PED = 2, PES = 1). Buyers cut back easily when the price rises, so sellers can pass on only a small part of the tax.

Suggested Marlbridge rubric	Point
Labelled graph: S shifts up with arrow, price above $20, quantity below 50	1
Deadweight loss shaded and labelled	1
Tax revenue $240 thousand with working	1
Deadweight loss $30 thousand with working	1
Demand more elastic than supply, so buyers bear less	1

Worked example 2: side-by-side graphs and a loss (Unit 3)

Question. Corvane’s dried-apricot market is perfectly competitive and constant-cost, in long-run equilibrium at $8 per kg with each identical firm selling 500 kg a week. Demand falls. (a) Using side-by-side graphs, show the effect on the market price and the firm’s output. (b) The price falls to $6; at its new output of 400 kg a firm’s ATC is $8.25 and AVC is $5. Calculate its profit or loss and say whether it keeps producing in the short run. (c) Explain the long-run adjustment. (6 points)

Weak answer. “(a) [One graph, D shifts left.] (b) 6 − 8.25 = −2.25, so it shuts down. (c) Firms leave and the price goes back up.”

What it misses. No firm graph; a per-unit loss, not the total; ATC instead of AVC for shut-down; no reason for exit or effect on supply.

Strong answer.

(a) Market: D₁ shifts left to D₂ (arrow); price falls from $8 to P₂; quantity falls. Firm: MR line drops from $8 to P₂; output falls along MC from 500 kg to q₂; P₂ is below ATC, so the loss rectangle is shaded.

(b) Profit = (P − ATC) × q = ($6 − $8.25) × 400 = −$900 a week. P ($6) is above AVC ($5), so revenue covers variable costs and part of fixed costs. It keeps producing: shutting down would lose all fixed costs, ($8.25 − $5) × 400 = $1,300.

(c) Losses cause some firms to exit. Market supply shifts left, so the price rises until it equals minimum ATC, $8, and economic profit is zero. Each remaining firm again sells 500 kg; the market sells less because there are fewer firms.

Suggested Marlbridge rubric	Point
Side-by-side graphs, price carried across, labelled shift	1
Firm output falls along MC; loss area shown	1
Loss of $900 with working	1
Keeps producing because P ≥ AVC	1
Losses → exit → supply shifts left → price rises	1
Long run: P = minimum ATC = $8, zero economic profit	1

Worked example 3: monopoly output and efficiency (Unit 4)

Question. Halvern Ferries is the only ferry across a fictional strait. Q is hundreds of tickets per day.

Q	1	2	3	4	5	6
Price ($)	40	36	32	28	24	20
MC ($)	10	12	14	16	18	20

(a) Identify the profit-maximising quantity and price. (b) ATC there is $20; calculate the profit. (c) Explain why this output is not allocatively efficient. (4 points)

Weak answer. “(a) Q = 4, price $16. (b) 16 − 20 = −4, a loss. (c) Monopolies charge unfair prices.”

What it misses. The price is read from MC, not demand, so (b) fails too. Part (c) is an opinion, not the efficiency rule.

Strong answer.

(a) TR = 40, 72, 96, 112, 120, 120, so MR = 40, 32, 24, 16, 8, 0. MR ≥ MC up to the 4th unit (16 = 16); for the 5th, MR $8 < MC $18. Q = 400 tickets, price $28 from demand.

(b) Profit = ($28 − $20) × 400 = $3,200 per day.

(c) Efficiency needs P = MC. At 400 tickets P ($28) is above MC ($16), so riders value another crossing more than it costs. The monopolist stops because selling more means cutting the price on every ticket, so MR is below P. The efficient output is 600 tickets (P = MC = $20); the lost trips are a deadweight loss.

Suggested Marlbridge rubric	Point
Q = 400 tickets from MR = MC	1
Price $28 read from demand	1
Profit $3,200 with working	1
P > MC at this output, so too little is produced	1

Common mistakes

• Unlabelled axes or curves, or a shift with no arrow and no new values.
• A triangle for tax revenue or a rectangle for deadweight loss.
• Reading a monopoly price from MR or MC instead of demand.
• Drawing only the market when asked about the firm, or different prices on the two graphs.
• “Demand changes” or “price is affected” with no direction.
• Using ATC for the short-run shut-down rule instead of minimum AVC.
• Using the old quantity after a tax or price control.

Practise it

Task 1 (Unit 1). Sami’s next cup of tea gives 30 units of utility and costs $3; his next sandwich gives 48 units and costs $6. Identify which he should buy first and explain why.

Model answer

Tea. MU ÷ P is 30 ÷ 3 = 10 per dollar for tea and 48 ÷ 6 = 8 for the sandwich, so a dollar spent on tea adds more utility.

Task 2 (Unit 2). A fictional museum raises its ticket price from $10 to $14, and daily visitors fall from 900 to 700. Calculate the price elasticity of demand (midpoint method) and state what happens to total revenue.

Model answer

% change in Qd = (700 − 900) ÷ 800 = −25%. % change in P = 4 ÷ 12 = 33.3%. PED = 25 ÷ 33.3 = 0.75, inelastic. Total revenue rises, from $9,000 to $9,800.

Task 3 (Unit 5). A firm sells its product in a competitive market at $4 and hires in a competitive labour market at $20 a day. Workers 1 to 5 have marginal products 10, 9, 7, 5 and 3. (a) Calculate how many workers it hires. (b) The product price rises to $7. Explain the effect on hiring.

Model answer

(a) MRP = MP × P = 40, 36, 28, 20, 12. Hire while MRP ≥ $20: 4 workers.

(b) A higher price raises each worker’s MRP (70, 63, 49, 35, 21), so labour demand shifts right. The 5th worker’s MRP, $21, now exceeds the wage, so the firm hires 5 workers.

Task 4 (Unit 6). A fictional cement plant releases dust that harms nearby farms. Explain why the market produces too much cement, and identify a per-unit tax that corrects it.

Model answer

The dust is a cost to third parties, so marginal social cost is above marginal private cost. Producers use private cost, so output where MPC = MSB is greater than where MSC = MSB; the extra units cost society more than they are worth (deadweight loss). A tax equal to the marginal external cost shifts MPC up to MSC, so output falls to the efficient level.

Task 5 (Unit 3). A perfectly competitive firm produces 500 units a week. It must now pay a licence fee of $300 a week, whatever it produces. Explain the effect on its MC, ATC and short-run output.

Model answer

The fee is a fixed cost, so MC and AVC do not change. ATC rises (by $300 ÷ 500 = $0.60 at 500 units). The firm still produces where P = MC, so output does not change; profit falls by $300 a week.

Where to practise next

• Market equilibrium and surplus practice: surplus areas.
• Government intervention practice: taxes and price controls.
• Perfect competition practice: side-by-side graphs.
• Monopoly practice: MR and deadweight loss.
• Competitive factor markets practice: MRP, MFC and hiring.
• Externalities practice: corrective taxes.