The Complete HSC Economics Diagram Guide
All nineteen diagrams the HSC Economics course actually asks for, drawn properly, with the labels that must appear, the sentence that integrates each one, and the mistake that costs the mark.
Crown Economics · Updated August 11, 2026 | 5 min read
A diagram is the cheapest mark in the HSC Economics paper. A well-drawn, fully labelled one takes ninety seconds and replaces half a page of writing you don't have time for. NESA's 2025 examiners praised diagram use in both Section IV questions.
It is also the easiest mark to throw away. A diagram floating on the page with no reference in your prose earns nothing at all.
Three rules apply to every diagram below, without exception:
- Title it. Figure 1: Effect of a tariff on the domestic market for steel.
- Label everything. Both axes, every curve, every equilibrium, every area you intend to discuss.
- Narrate it using your own labels. "As Figure 1 shows, the tariff raises the domestic price from P to P1, contracting consumption from Q1 to Q3."
Here is the full set, in the order you are likely to need them.
1. The business cycle
When to use it. Any question on economic growth, the objectives of policy, or why governments use counter-cyclical policy at all.
Must-have labels. Real GDP on the vertical axis, time on the horizontal, the trend line, and at least one peak and trough marked.
The sentence. "As Figure 1 illustrates, actual output fluctuates around the long-term trend, and the role of counter-cyclical policy is to dampen the amplitude of those fluctuations rather than to change the trend itself."
The mistake. Drawing the trend flat. The trend rises, and that is the point of the distinction between the cycle and long-run growth.
2. A tariff
When to use it. Methods of protection, the effects of protection, free trade agreements, and any question about who wins and loses from trade policy.
Must-have labels. The world price P, the tariff-inclusive price P1, all four quantities, and the shaded areas.
Read it in one breath. Consumers lose a + b + c + d. Producers gain a. Government collects c. Areas b and d are deadweight loss, being a production inefficiency and a consumption inefficiency, lost to the economy entirely.
The sentence. "The tariff transfers area a from consumers to producers and area c to government, but areas b and d represent a net welfare loss, as resources are drawn into higher-cost domestic production and consumers are priced out of the market."
The mistake. Forgetting that the height of the tariff revenue rectangle is the tariff and its width is the remaining imports, not total consumption.
3. An import quota
When to use it. Whenever you are comparing methods of protection. The comparison is the whole point.
The one difference that matters. The diagram is identical to a tariff except for area c. Under a tariff, government collects it. Under a quota, it accrues to whoever holds the import licences, often foreign exporters. So a quota can be worse for national welfare than a tariff raising the price by the same amount.
The sentence. "While the price and quantity effects mirror those of a tariff, area c under a quota accrues to licence holders as quota rent rather than to government as revenue, meaning the domestic economy forgoes that transfer entirely where licences are held offshore."
The mistake. Drawing a quota diagram and calling area c "government revenue". That single word is the difference between showing you understand the comparison and showing you memorised one diagram.
4. A subsidy that does not cover all domestic demand
When to use it. Subsidies as a method of protection, and any comparison of subsidies with tariffs.
The insight most students miss. In a small open economy the world price is given. A subsidy therefore does not change what consumers pay and does not change domestic consumption. Only domestic production and the import gap move. That is why there is one deadweight loss triangle here rather than two: there is no consumption distortion, because consumers were never affected.
The sentence. "Because Australia is a price taker at the world price P1, the subsidy leaves consumption unchanged at Q2 and instead expands domestic production from Q1 to Q, displacing imports. The cost to government, a + b, exceeds the gain in producer surplus, a, by the production efficiency loss b."
The mistake. Drawing it as a closed-market subsidy with the consumer price falling. That is a different diagram from a different topic.
5. A subsidy large enough to cover all domestic demand
When to use it. Evaluating how far a government should go, or arguing that protection has increasing marginal costs.
Why it earns evaluation marks. Compare the size of triangle b here with the previous diagram. Eliminating the last slice of imports costs far more per unit of import displaced than the first. That is an argument about diminishing returns to protection that you can make with two pictures and no extra memorisation.
The mistake. Assuming consumers benefit. They pay the world price either way, and simply pay for the subsidy through taxation instead.
6. Appreciation of the Australian dollar
When to use it. Exchange rate determination, the effects of exchange rate movements, and RBA intervention.
Draw only the panel the question needs. If the question names a cause, whether higher commodity prices, a wider interest rate differential or foreign investment inflow, that tells you which curve moves.
Must-have labels. US$ per A$ on the vertical axis, quantity of A$ on the horizontal, both equilibria marked.
The sentence. "As Figure 6 shows, increased demand for the AUD shifts D to D1, appreciating the currency from US$0.70 to US$0.80 and raising the quantity traded."
The mistake. Putting the wrong thing on the axes. The price of the AUD is measured in foreign currency, and the quantity is quantity of Australian dollars.
7. Depreciation of the Australian dollar
When to use it. The same questions in reverse, and this is the more examinable direction in 2026, with the AUD around US$0.70 and softer Chinese industrial demand weighing on commodity prices.
The sentence. "The fall in demand for the AUD shifts D to D1, depreciating the currency from US$0.80 to US$0.70. This improves international competitiveness but raises the AUD price of imported inputs, most significantly fuel, which is priced in US dollars, adding to imported inflation at a time when trimmed mean inflation of 3.6% already sits above the RBA's target band."
The mistake. Confusing depreciation with appreciation under exam pressure. NESA's 2025 examiners reported exactly this on the exchange rate question. Write the direction in the margin before you draw.
8. The J-curve
When to use it. Any question linking exchange rates to the balance of payments or external stability.
The mechanism, in one chain. Depreciation → contracted import volumes are price-inelastic in the short run → the higher AUD cost of the same imports dominates → trade balance worsens → over time, volumes respond, exports expand and imports are substituted away from → balance improves.
The sentence. "As Figure 8 illustrates, the trade balance initially deteriorates following a depreciation because import volumes are contracted and relatively price-inelastic, and only improves once volume effects outweigh the price effect."
The mistake. Drawing a J that never crosses back above the axis. The recovery is the entire point of the shape.
9. A fixed exchange rate
When to use it. Comparing exchange rate systems, or explaining why Australia floated in 1983.
The sentence. "Holding the rate at P1, above the market-clearing level, generates an excess supply of Q1 to Q2, which the central bank must absorb by purchasing its own currency and running down foreign reserves, a commitment that is not indefinitely sustainable."
The mistake. Not saying what the central bank actually does about the disequilibrium. The diagram shows the gap, and your prose has to show the intervention.
10. The Keynesian aggregate expenditure model
When to use it. Economic growth, the components of aggregate demand, and any question about how injections change national income.
How to read it. The 45° line is every point where planned expenditure equals output. Equilibrium is where the expenditure line crosses it. With C = 50 + 0.5Y, equilibrium income is 100; add investment to get C + I = 100 + 0.5Y and equilibrium income becomes 200.
The mistake. Labelling the axes wrongly. Expenditure goes on the vertical axis, national income on the horizontal, and the 45° line must actually be at 45°.
11. The short-run Phillips curve
When to use it. The relationship between inflation and unemployment, conflicts between policy objectives, and the costs of disinflation.
The sentence. "As Figure 11 shows, in the short run a reduction in unemployment from 6% to 5% is associated with an increase in inflation from 3% to 5%, reflecting the trade-off policymakers face between the objectives of full employment and price stability."
The mistake. Drawing it as a straight line. It is convex to the origin, because the trade-off worsens as unemployment falls.
12. The long-run Phillips curve
When to use it. Any question where you want to argue that there is no permanent trade-off, which is a strong evaluation move.
The three-step story. Start at A, at the natural rate with 2% inflation. Expansionary policy moves the economy along the short-run curve to B: unemployment falls to 5%, inflation rises to 3%. Then expectations adjust, the short-run curve shifts up, and the economy returns to the natural rate at C, with the same unemployment and permanently higher inflation.
Tie it to 2026. The RBA's estimate of the NAIRU is around 4.6% and actual unemployment is 4.4%. That is the Bank's own case that the labour market is operating beyond the sustainable rate.
The mistake. Drawing the LRPC vertical but never explaining why. The answer is inflation expectations.
13. The Lorenz curve
When to use it. Distribution of income and wealth. It appeared in Section II in 2023 and Section III in 2025.
Must-have labels. Cumulative percentage of households on the horizontal axis, cumulative percentage of income on the vertical, the line of perfect equality, and both areas.
The sentence. "The Gini coefficient, calculated as A ÷ (A + B), rises as the Lorenz curve bows further from the line of equality, with 0 representing perfect equality and 1 complete inequality."
The mistake. Reversing the axes, or drawing the curve above the diagonal. It can never be above.
14. A negative externality
When to use it. Environmental sustainability, market failure, and the case for government intervention.
The sentence. "Because the private supply curve reflects only private costs, the market equilibrium at qm exceeds the socially optimal quantity qs, and the good is under-priced at Pm relative to the socially efficient price Ps, which is the classic case for a corrective tax or a market-based mechanism."
The mistake. Shifting the wrong curve. A production externality moves supply, and a consumption externality moves demand.
15. A positive externality
When to use it. Education, health, vaccination and R&D, meaning anywhere you want to argue for a subsidy rather than a tax.
The sentence. "Social demand exceeds private demand by the value of the external benefit, so the market under-produces at qm relative to the socially optimal qs, justifying a subsidy to close the gap."
16. Depletion of natural resources
When to use it. Ecologically sustainable development, and the conflict between growth and the environment.
Why it's worth the ninety seconds. It turns an abstract argument into a visible one: pursuing maximum output now shrinks the frontier available later. That is intergenerational equity in a single picture.
The sentence. "As Figure 16 shows, over-exploitation of the natural resource base contracts the production possibility frontier over time, so present consumption is achieved at the direct cost of future productive capacity, which is the core tension in ecologically sustainable development."
17. Tradable emissions permits
When to use it. Market-based environmental policies, and comparisons with a carbon tax.
The key property. Supply is perfectly inelastic, because the government fixes the quantity of emissions and lets the market discover the price. A tax does the opposite, fixing the price and letting the market determine the quantity. Which you prefer depends on whether you care more about certainty over emissions or certainty over cost.
The mistake. Drawing the permit supply curve sloping upward. It is vertical, and that is the entire distinction from a tax.
18. The Australian cash market
When to use it. The implementation of monetary policy, meaning how the Reserve Bank actually gets the cash rate to its target. Keep that separate from transmission, which is the arrow chain from the cash rate through to inflation, and is not a diagram at all. Blurring the two is exactly what NESA's 2025 examiners found students doing on the monetary policy question.
This is the Reserve Bank's own figure, from its Explainer How the Reserve Bank Implements Monetary Policy, and it walks through the market in five numbered steps.
1. Price. The price in this market is the interest rate on overnight loans between banks, which is the cash rate.
2. Quantity. The quantity traded is Exchange Settlement (ES) balances, the deposits banks hold at the Reserve Bank to settle payments with each other. Because the RBA controls the banknotes available to the public, ES balances are effectively cash.
3. Demand. Banks want ES balances as a store of value and to make payments. Demand slopes downward, because the cheaper it is to borrow them, the more banks want.
4. Supply. Vertical, because the quantity of ES balances in the system is determined by the Reserve Bank.
5. The policy interest rate corridor. This is the part most students have never seen, and it is the key to the whole diagram. The Reserve Bank sets two rates around its target:
| Rate | Level, August 2026 | Role |
|---|---|---|
| RBA lending rate (standing facility) | 4.60%, target + 0.25 | ceiling: no bank pays more than this, because it can borrow from the RBA instead |
| Cash rate target | 4.35% | the announced policy variable |
| RBA deposit rate (paid on ES balances) | 4.25%, target − 0.10 | floor: no bank lends below this, because it can simply deposit with the RBA |
Those two rates form the corridor, and banks have no incentive to trade outside it. Change the target and the corridor moves with it, which is how a cash rate decision becomes an actual market rate.
The sentence. "As Figure 18 shows, the cash rate is confined to a corridor bounded above by the rate at which the Reserve Bank will lend ES balances and below by the rate it pays on ES balances held with it. Because banks have no incentive to borrow above the ceiling or lend below the floor, announcing a new cash rate target shifts the entire corridor and the market rate follows."
The mistake. Describing the RBA as "printing money" or "setting interest rates" generally. It sets a target for one overnight interbank rate and enforces it through this corridor. Everything else, including mortgage rates and business lending, follows through transmission.
What changed in 2020, and why it is worth knowing
The version of this diagram in most textbooks shows the RBA shifting the vertical supply curve left or right to move the cash rate. That was accurate once, and it is no longer how the Bank operates.
The scarce reserves era, pre-2020. The Reserve Bank estimated how many ES balances the system needed each day and supplied just enough to meet that demand, keeping reserves genuinely scarce. Because they were scarce, quantity determined price. Daily open market operations, mostly repurchase agreements or repos, nudged that supply and so nudged the cash rate.
What broke it. The pandemic response, in particular the Term Funding Facility and the bond purchase programme, flooded the system with ES balances. The RBA's explainer now states plainly that it "no longer conducts daily open market operations to manage ES balances" and that the cash rate "is maintained consistent with the target through the interest rate corridor." With reserves abundant, adding or removing them barely moves the rate, so the supply curve stopped being the lever and the corridor took over.
Where market operations still fit. They have not disappeared, but their job has changed. Following an announcement by Assistant Governor Christopher Kent in March 2024, the Bank has been transitioning to an "ample reserves with full allotment" system, with the operational changes taking effect from April 2025. At its open market operations the RBA now supplies as many reserves as banks ask for, through full-allotment repo auctions priced at a fixed spread above the cash rate target. So operations supply liquidity elastically at a price tied to the target rather than rationing a fixed quantity to discover a price, which is the reverse of the old textbook story.
How to use this in an essay. Not as your opening line, and never as a reason to skip the diagram. Deploy it as evaluation:
"The conventional textbook account depicts the Reserve Bank moving the cash rate by shifting the supply of Exchange Settlement balances. In practice the Bank has not operated this way since 2020: with reserves abundant following the Term Funding Facility and bond purchase programme, the cash rate is anchored instead by the interest rate corridor, and open market operations now supply reserves in full at a spread to the target rather than rationing them. The transmission mechanism through retail interest rates is unaffected, but the implementation channel has changed fundamentally."
That paragraph demonstrates the distinction between implementation and transmission, uses a current institutional fact almost no other candidate will have, and shows you can evaluate a model rather than just reproduce it.
19. The crowding out effect
When to use it. Limitations of fiscal policy, budget deficits, and conflicts between policy objectives.
Read the two panels together. Government borrowing adds to demand for loanable funds, shifting D to D1 and raising the real interest rate from 4% to 5%. Carry that rate across to the second panel and private investment falls from 120 to 100. Public borrowing has displaced private investment.
The sentence. "As Figure 19 illustrates, financing a deficit through borrowing raises the real interest rate from 4% to 5%, which moves the economy up its investment demand curve and reduces private investment from 120 to 100, offsetting part of the intended expansionary effect."
The evaluation. Crowding out is strongest when the economy is near capacity and weakest when there is substantial spare capacity, which is why the argument carried much less force in 2020 than it does with unemployment at 4.4% and below the NAIRU in 2026.
How to practise these
Do not "revise" diagrams by looking at them. Draw them.
Set a ninety-second timer and reproduce one from memory, on paper, with a pen rather than a pencil, because you won't have time to rub anything out in the exam. Then check it against the version here and mark yourself on labels alone: axes, curves, equilibria, areas. Most lost diagram marks are missing labels, not wrong shapes.
Then write the integrating sentence underneath. The diagram is only worth what your prose says about it.
Once the set is automatic you have a bank of nineteen responses you can deploy in ninety seconds each. In a paper where the binding constraint is time, that is worth more than almost anything else you can memorise.
Want your diagrams and the paragraphs around them marked against the actual criteria? That is what the Crown Economics masterclasses are for.
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