During my teaching career, I've noticed that many students, especially at the beginning of the course, find it challenging to grasp the abstract nature of economics and effectively communicate their analysis using diagrams. To address these common struggles, this framework began as a simple guide for beginners and has evolved into a comprehensive approach that takes students from basic analysis to expert economic thinking.
The five essential steps provide a clear pathway for analysing market equilibrium changes and articulating that understanding—a crucial skill for economics examinations that often makes the difference between average and exceptional grades. The later steps can help to reveal more nuance when students have more experience and can take better control of their own writing.
The beauty of this approach is its flexibility and scalability. Whether you're preparing for IB Economics or simply wanting to better understand market dynamics, this structured method will help develop both your analytical and communication skills and transform complex economic concepts into manageable, step-by-step analysis.
The very basics
The following five steps should be used, in this exact sequence, to secure strong analysis, and correct communication.
Identify the original equilibrium P1Q1.
Identify what one thing has shifted, and in what direction.
Identify the size of the disequilibrium at the original P1; is it a shortage or surplus?
Identify the contraction or extension to find the new equilibrium along the curve that did not move.
Compare new equilibrium P2Q2 to old equilibrium P1Q1; has the price increased or decreased and has the market grown or shrunk?
Example: Using your knowledge of economics, explain what happens to the market for pizza if the price of tomatoes and cheese increases.
The pizza market begins in equilibrium at P1Q1 until rising costs of tomatoes and cheese shift supply leftward from S1 to S2. At the original price P1, a shortage emerges as producers offer fewer pizzas than consumers demand. Price signals then guide market adjustment—rising prices incentivize producers to increase quantity supplied along S2 while consumers reduce quantity demanded. The new equilibrium at P2Q2 features a higher price and smaller market size, showing how the price mechanism efficiently resolves market disequilibrium.
Intermediate
Add these insights to show some deeper knowledge and understanding
Use the following concepts to explain why and how the new equilibrium was found;
signals, incentives, the invisible hand
Identify impacts upon efficiency, via comments upon allocative efficiency
You will also see opportunities to use elasticity to develop your insights. For example, has Qd changed relatively more or relatively less than the change in P?
Comment upon the change in welfare of stakeholders.
For example, are consumers better off or worse off? Consider how consumer surplus has changed.
For example, are producers better off or worse off? Consider how producer surplus has changed.
Expert
In the IB questions that use AO3 terms such as evaluate and discuss you must explore the situation at a deeper level. It is quite likely there are valid opposing conclusions. And very often it depends on the context of the examples used, e.g. real world examples (RWE)
Consider how the nine key concepts could be used to generate interesting and debatable talking points;
Do you think the disequilibrium will be solved quickly or not? Why? What are the impacts?
Is there a difference between observations in the short term versus what could happen in the long term? e.g. painful tax increase seen immediately but ultimately over time those people will stop smoking and benefit.
If the situation is caused by government policy, e.g. tax, consider the strengths and weaknesses / pro and con / adv and disadv.
Are there unintended consequences or adverse side effects?
Weigh-up and rank the arguments providing reasoning, logic, justification.
Enter debate by offering counterpoints, before arriving at a conclusion.
