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Diagrams are one of the most important aspects of IB Economics. While understanding definitions, theories, and policies is essential, students are also expected to communicate economic concepts visually through accurate diagrams. In many cases, a well-drawn diagram can significantly improve the quality of an exam response or internal assessment commentary. Although the Global Economy section of the IB Economics syllabus contains a variety of concepts, a relatively small number of diagrams appear repeatedly throughout examinations. In this post, we examine the four most important global economy diagrams that every IB Economics student should know thoroughly.
IB Economics Diagrams – The Global Economy
Tariff Diagram
Tariffs are taxes imposed on imported goods and are one of the most frequently tested forms of protectionism in IB Economics. The tariff diagram illustrates how imposing a tax on imports increases domestic prices, reduces imports, encourages domestic production, and decreases domestic consumption. Students are expected to understand how tariffs affect consumers, producers, governments, and overall economic welfare. In addition to identifying changes in prices and quantities, students should be able to label government revenue and welfare losses accurately. This diagram is particularly important because it combines concepts from both microeconomics and international economics and frequently appears in Paper 1 and Internal Assessment commentaries.
Things to keep in mind:
Begin with the free trade equilibrium by drawing domestic supply and demand curves alongside the world price.
Draw the tariff as a vertical increase above the world price and clearly label the new domestic price.
Identify domestic production and domestic consumption before and after the tariff using dotted guidelines.
Clearly label imports both before and after the tariff to demonstrate the reduction in trade.
Shade and label government tariff revenue accurately using the post-tariff import quantity.
Identify and label the deadweight welfare loss triangles resulting from production and consumption inefficiencies.
Ensure that all quantities, prices, and welfare areas are clearly distinguishable and do not overlap.
Import Quota Diagram
Import quotas are quantitative restrictions that limit the amount of a good that may be imported into a country. Unlike tariffs, which indirectly affect imports through price changes, quotas directly restrict the quantity of imports entering the market. Quotas increase domestic prices, reduce consumer surplus, and benefit domestic producers. Students are expected to understand how quotas differ from tariffs and how they affect market efficiency and economic welfare. Because quotas often appear in discussions of protectionism and trade policy evaluation, students should be comfortable drawing and explaining these diagrams quickly and accurately.
Things to keep in mind:
Start by drawing the domestic supply and demand curves together with the world price equilibrium.
Clearly identify domestic production, domestic consumption, and imports under free trade conditions.
Introduce the quota by restricting imports to a fixed quantity and identify the resulting domestic price increase.
Label domestic production and domestic consumption after the quota is imposed.
Clearly indicate the quota rent area and distinguish it from government revenue.
Shade and label the welfare loss areas resulting from overproduction and underconsumption.
Use vertical and horizontal guide lines to ensure that all quantities and prices can be interpreted easily.
Export Subsidy Diagram
An export subsidy is a government payment provided to domestic producers to encourage exports. Export subsidies artificially lower production costs and increase exports, often allowing domestic firms to become more competitive in international markets. However, export subsidies can also distort market outcomes, create welfare losses, and lead to international trade disputes. In IB Economics, students are expected to understand how export subsidies affect domestic prices, domestic consumption, domestic production, exports, government expenditure, and overall economic efficiency. This diagram frequently appears in discussions of trade protection and government intervention in international markets.
Things to keep in mind:
Begin by drawing the domestic supply and demand diagram with the initial world price.
Introduce the export subsidy by showing the increase in the effective price received by producers.
Clearly identify changes in domestic production and domestic consumption following the subsidy.
Label the increase in exports resulting from the subsidy.
Shade and label government expenditure on the export subsidy accurately.
Identify any welfare loss areas resulting from inefficient production and consumption decisions.
Ensure that all equilibrium prices and quantities are clearly marked using guidelines.
Exchange Rate Determination Diagram
The foreign exchange market diagram illustrates how exchange rates are determined by the interaction of demand and supply for a currency. Changes in interest rates, inflation, economic growth, trade flows, and investor confidence can all influence currency demand and supply, causing appreciation or depreciation. Students must understand both the mechanics of exchange rate determination and the broader economic consequences of exchange rate fluctuations. This diagram appears frequently in examination questions related to balance of payments, international competitiveness, inflation, and economic policy.
Things to keep in mind:
Label the vertical axis as the exchange rate and the horizontal axis as the quantity of currency traded.
Draw downward-sloping demand and upward-sloping supply curves for the currency.
Clearly identify the initial equilibrium exchange rate and quantity using labels such as E₁, ER₁, and Q₁.
Use arrows to indicate shifts in demand or supply resulting from economic changes.
Label the new equilibrium exchange rate and identify whether the currency appreciates or depreciates.
Ensure that exchange rate changes are clearly visible and not obscured by labels or annotations.
Maintain realistic slopes for the demand and supply curves and avoid excessive diagram complexity.
We hope you found this post helpful in learning more about common global economy diagrams encountered in IB Economics. For more useful materials associated with the IB, check out the wide variety of IA, EE and TOK exemplars available at Clastify and other guides available on our blog.
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