8 Microeconomics Graphs You Must Need To Know
Essential Graphs for Microeconomics
There are many graphs in microeconomics. In this article, we will discuss about an eight main microeconomics graphs. They are,
1. Demand graph
2. Supply graph
3. Market equilibrium
4. Monopoly graph
5. Price ceiling graph
6. Price floor graph
7. Long run perfect competition graph
8. Short run perfect competition graph
Let’s discuss about these microeconomics graphs separately.
Microeconomics Graphs
Microeconomics Graph 1: Demand Graph
We can identify the relationship between price and quantity of demand for a particular good using a graph. Assume that the following is the “demand curve for wheat in the United Kingdom for a week”.
In this economics graph, if price is increased from 1GBP to 2GBP, the quantity demanded will be moved from point B to point A along the demand curve. In other words, there will be an increase in the quantity demanded.
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What is the difference between demand and quantity demanded?
Microeconomics Graph 2: Supply Graph
Assume that following microeconomics graph is the “supply curve for the Wheat in USA for a week”.
The minimum supply price per wheat 1 kg is $ 2. That means, when the price of wheat 1kg is $ 2, the quantity of supply is equal to zero. The supply curve starts from this point. If the price is less than $ 2, suppliers will not supply the wheat.
In this economics graph, if price is increased from $4 to $8, the quantity demanded will be moved from point A to point C along the supply curve. In other words, there will be an increase in quantity supplied.
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What is the difference between supply vs quantity supplied?
Microeconomics Graph 3: Market equilibrium
Market equilibrium occurs when the demand of a particular good equals its supply. So, in this table, at price of $3 both supply and demand are 600 000 bushels of wheat.
So, the equilibrium price in this market is $3. The equilibrium quantity in this market is 600 000 bushels of wheat.
Graphing market equilibrium
Assume that the following market equilibrium graph graphically presents the market equilibrium of example 1.
E” supply and demand for the wheat equals to each other. There is no tendency to change them. So, we can say that equilibrium for the wheat market is laying on point “E” and equilibrium price equals $3 per a bushel of wheat and equilibrium quantity equals to 600 000 bushels of wheat.
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Market Equilibrium – With Examples & Graph
Microeconomics Graph 4: Monopoly Graph
According to the above economic graph, in point E, MR=MC. At the point E, this monopoly firm earn the maximum profit.The point where MR =MC can be considered as the profit maximization point or loss minimization point. Profit maximization can occur at the over-capacity, efficient scale level, or under-capacity.
In this example, this monopolistic firm operates at the point Q1. (Where MR= MC). So, the price level equals P1 where the relevant price to Q1 production is. So, this monopolistic firm produces at the excess capacity in other words produces a lower amount of output than the optimum amount of output.
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Monopoly Graph, Characteristics, Types, Examples and Causes
Microeconomics Graph 5: Price ceiling graph
Assume that government imposes a ceiling price on sugar. So, the following microeconomics graph shows the impact of the ceiling price on sugar.
The equilibrium quantity of sugar is Q*, and the equilibrium price is P*, as seen in the above graph before the ceiling price. Following that, the government sets a maximum price (or “Pmax”) for sugar.
Price Ceiling Definition, Graph, Examples and Effects
One of the most well-known examples of price ceilings in the housing market is USA Rent Control program
Price ceiling // Using the Medical and Housing market
Microeconomics Graph 6: Price floor graph
The equilibrium quantity of butter is Q*, and the equilibrium price is P*, as seen in the above graph before the floor price. Following that, the government sets a minimum price (or “Pmin”) for butter.
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Price Floor Definition, Graph, Examples and Effects
Microeconomics Graph 7: Long run perfect competition graph
The point where MR =MC can be considered as the profit maximization point or loss minimization point. According to the above perfect competition graph, the P1 price level is determined by the perfectly competitive industry and the firm can sell whatever amount at the P1 price level. So, the firm produces at the Q2 quantity which is profit maximization output level of the organization. At this output level, the average cost (AC) of the firm equals to average revenue (AR). So, the firm only earns normal profits.
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Perfectly Competitive Market Meaning, Characteristics, & Examples
Perfect Competition Graph in Short Run and Long Run
Microeconomics Graph 8: Short run perfect competition graph
If firms earn economic profits, new firms see economic profits and come to the market (because there are no entry barriers). Following is the perfect competition graph in short run that earns a profit.
According to the above perfect competition graph, Q2 is the profit maximization point of the firm in short run (output level where MR=MC). At this output level, AR is higher than AC. So, the firm earns an economic profit. Amount of economic profit is presented in ABP1P2 area of this perfect competition graph.
