How to Draw Externality Diagrams Without Memorising

Struggling with drawing externality diagrams in IB Economics? You're not alone. Many students get overwhelmed by curve names and labels. Luckily, there's a simple, rule-based approach that lets you draw any externality diagram—production or consumption—without memorising a thing.

The Rules for Externality Diagrams

1. Curve Splits

   • In a production externality, the supply curve splits into two.
   • In a consumption externality, the demand curve splits into two.

2. What Curves Reflect

   • Supply reflects costs (MPC, MSC)
   • Demand reflects benefits (MPB, MSB)

3. Market vs. Social Equilibrium

   • Market equilibrium ( Q_m ) reflects private costs and benefits
   • Social optimum ( Q_{opt} ) reflects social costs and benefits

4. Identifying the Externality Type

   • Negative Externality: ( Q_m > Q_{opt} ) → too much of a bad thing
   • Positive Externality: ( Q_m < Q_{opt} ) → too little of a good thing

Step-by-Step: How to Use These Rules

1. Draw the Base
   Draw a basic demand and supply diagram with axes labelled P (price) and Q (quantity).

2. Split the Curve

   • For production externalities: draw two upward-sloping supply curves
   • For consumption externalities: draw two downward-sloping demand curves
     Identify the two quantities on the Q-axis.

3. Identify Qm and Qopt
   Based on the externality type:

   • Negative: label larger quantity as ( Q_m ), smaller as ( Q_{opt} )
   • Positive: label larger quantity as ( Q_{opt} ), smaller as ( Q_m )

4. Label the Curves

   • ( Q_m ): mark MPC and MPB (private curves)
   • ( Q_{opt} ): mark MSC and MSB (social curves)

5. Mark Welfare Loss
   Draw a triangle between the curves that points toward ( Q_{opt} ). This is your welfare loss area.

Conclusion

By following this logical method, you can confidently draw and explain any externality diagram in IB Economics. It works whether you're tackling a positive consumption externality or a negative production externality—and best of all, you won't need to memorise a thing.

This technique is exam-ready, time-efficient, and designed for IB success.