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# Most Important Diagrams in Microeconomics and Macroeconomics When we study Economics and as we go through the chapters, what immediately captures our attention is that most concepts are interpreted through diagrams. Be it from the basic concept of demand and supply in Microeconomics to the concept of excess demand in Macroeconomics, every relationship or variable is presented diagrammatically.

So, a question usually pops up while writing an answer: Is it necessary to incorporate diagrams?

The answer is yes! The reasons are many. Diagrams help you to visualise and interpret relationships between factors which are important. They enable understanding of economic concepts. And to top your class, they can play the game changer to help you score higher marks—a student with neater diagrams always gets more marks among classmates with answers which read alike. While diagrams used in answers give the examiner a good impression, it is important that they are only used in relevant questions.

Both Microeconomics and Macroeconomics have diagrams which you should not miss when studying.

To make your preparation simple, below is a list of important topics which have diagrams. You must revise these thoroughly.

Topics in Microeconomics and Macroeconomics with diagrams

 MICROECONOMICS Production Possibility Frontier Utility [Total and Marginal] Law of Diminishing Marginal Utility Consumer’s Equilibrium Indifference Curve Movements and Shifts in Demand Curve Movements and Shifts in Supply Curve Total Product, Average Product and Marginal Product Cost Curves Revenue Curves Market Equilibrium

 MACROECONOMICS Average and Marginal Propensity to Consume Average and Marginal Propensity to Save AD-AS Approach Saving-Investment Approach Excess and Deficient Demand Inflationary and Deflationary Gap Exchange Rate under Free Market

Now that you have this list of important concepts which have diagrams, note them down and do not miss practising these diagrams and using them in your answers.

Diagrams in Economics

When it comes to incorporating diagrams in your answers, remember these few points.

1. A picture or diagram can say more. It gives the examiner an impression that you have clearly understood the concept. Use diagrams appropriately.
2. Use diagrams only for relevant questions and not in every answer.
3. Marks are especially allotted for diagrams in questions. Use them in your answer to get those bonus marks.
4. All diagrams may not be related to a schedule. Combine the two only when required to avoid any confusion and error.
5. Diagrams must be clearly visible and points must be accurate.
6. Labelling of axes, curves and equilibrium is important.
7. Don't try to mug up the diagram. Practise and understand the concept using the diagram.

We’ll look at a question to learn how you can incorporate a diagram in your answer.

Question: Explain national income equilibrium through the aggregate demand and aggregate supply approach by using a diagram.

According to Keynesian theory, the equilibrium level of income in an economy is determined when the AD (C+I) curve is equal to the total output AS.

Equilibrium level of income is attained only when the aggregate demand is equal to the aggregate supply.

The determination of equilibrium by the aggregate demand and aggregate supply approach (AD and AS approach) can be explained with the help of the following diagram. In the diagram, we see that AD and AS intersect at point E. This is the equilibrium point where planned expenditure (spending on consumption and investment) is exactly equal to the level of planned output. OQ is the equilibrium level of output corresponding to point E. This situation is also termed effective demand.

So, in conclusion, the three most important things to note when it comes to diagrams in Economics are

1. The most important topics which have diagrams
2. The importance of incorporating diagrams in answers
3. How to incorporate a diagram in an answer

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