Answer Structures, Diagrams & Formulae

Plan — The 20-mark essay structure

1. Introduction: define the key terms and state your line.
2. Analysis: one or two developed chains, each with an accurate diagram.
3. Evaluation: weigh the analysis using MICE (above all, elasticities and stage of development).
4. Conclusion: a clear, justified judgement — "it depends on…".

Must-know — Diagram bank

Key terms

Be ready to draw, label and interpret:

- the tariff diagram (with tariff revenue and deadweight loss); - exchange-rate determination (demand & supply of a currency); - the J-curve (current account over time after a depreciation); - the Lorenz curve (and the Gini coefficient); - the Laffer curve (tax rate vs revenue).

Formulae — The formula sheet

$$\text{Terms of trade} = (\text{export price index} \div \text{import price index}) \times 100$$

a rise = an improvement; effect on revenue depends on PED

$$\text{Marshall-Lerner condition: } PED_x + PED_m > 1$$

the condition for a depreciation to improve the current account

$$\text{Gini coefficient} = \text{area A} \div (\text{area A} + \text{area B})$$

ranges from 0 (equal) to 1 (unequal)

$$\text{HDI} = \text{a composite index of health, education and income (scaled 0–1)}$$