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AQA AS-Level Economics 7136
Economic Methodology and the Economic Problem
Price Determination in a Competitive Market
Topic overviewDemand, the demand curve, income and wealthSubstitutes, complements and consumer preferencesPrice elasticity of demand and total revenueThe determinants of price elasticity of demandIncome and cross elasticity of demandThe determinants of supplyPrice elasticity of supplyEquilibrium, disequilibrium and how a market clearsShifts in demand and supply, and the price mechanismThe interrelationship between markets
Production, Costs and Revenue
Perfect Competition, Imperfectly Competitive Markets and Monopoly
The Market Mechanism, Market Failure and Government Intervention
Topic overviewHow markets and prices allocate resourcesThe meaning of market failurePublic goods, private goods and quasi-public goodsPositive and negative externalitiesMerit and demerit goodsMarket imperfectionsAn inequitable distribution of income and wealthIndirect taxes and subsidiesPrice controls, state provision and regulationEvaluating intervention and the mixed economyGovernment failure
The Measurement of Macroeconomic Performance
How the Macroeconomy Works
Topic overviewThe circular flow of incomeThe aggregate demand and aggregate supply curvesWhat shifts short-run and long-run aggregate supplyMacroeconomic equilibrium and economic shocksConsumption and investmentGovernment spending and net exportsThe accelerator, saving and investmentAggregate demand and the level of economic activityThe determinants of aggregate supply
Economic Performance
Topic overviewShort-run and long-run economic growthThe economic cycle and output gapsDemand-side and supply-side shocksMeasuring unemployment and the types of unemploymentThe determinants of employment and policies to reduce unemploymentInflation and deflationThe quantity theory of moneyConsequences of inflation and deflationThe balance of payments on current accountOutput gaps and the growth-inflation conflictReconciling policy objectives in the AD/AS model
Financial Markets and Monetary Policy
Fiscal Policy and Supply-Side Policies
Price Determination in a Competitive Market
- 10 subtopics
- 33 things to know
- Papers 1 and 3
What Price Determination in a Competitive Market covers
Price determination is examined on Papers 1 and 3, and is the core microeconomic model. It covers what moves demand and supply, the elasticities that measure how far they move, and how the two settle at an equilibrium price.
Where it is assessed
Papers 1 and 3
Markets and market failure, then the synoptic paper.
Check the AQA specification ↗The 10 subtopics
Each one has its own page. AQA AS Economics students sit this topic in the first year.
- Demand, the demand curve, income and wealthThe demand curve, movements along it and shifts of it, and the effect of income and wealth.Open →
- Substitutes, complements and consumer preferencesHow the prices of related goods shift demand, and the part played by tastes and social factors.Open →
- Price elasticity of demand and total revenueCalculating PED, the elastic and inelastic ranges, and what each means for a firm's total revenue.Open →
- The determinants of price elasticity of demandSubstitutes, share of income, time, necessity and habit, and how to read a calculated value.Open →
- Income and cross elasticity of demandYED and XED, the sign each takes, and what they reveal about normal, inferior, substitute and complementary goods.Open →
- The determinants of supplyProduction costs, technology, the number of firms, taxes, subsidies and the weather.Open →
- Price elasticity of supplyCalculating PES, and the factors that make supply more or less responsive to price.Open →
- Equilibrium, disequilibrium and how a market clearsEquilibrium price and quantity, excess demand and excess supply, and how the market corrects itself.Open →
- Shifts in demand and supply, and the price mechanismPredicting the new equilibrium after a shift, and the rationing, signalling and incentive functions of price.Open →
- The interrelationship between marketsJoint demand, competitive demand, joint supply and composite demand, and tracing an effect between markets.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
Process
How do changes in income and wealth shift the demand curve?
Evaluation
How does a change in the price of one good affect demand for the good used alongside it?
Process
What are complements, and how does a change in their price shift demand?
Process
How does a change in consumer income affect the demand curve for a normal good?
Process
How might emotional factors influence the demand for a good?
Numbers
How is price elasticity of demand calculated, and why is it normally negative?
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How does elasticity affect total revenue, and what makes demand more elastic?
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How is income elasticity of demand calculated, and what value does a normal good take?
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How is cross elasticity of demand calculated, and what does its sign show?
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How is total revenue calculated, and what determines cross elasticity between two goods?
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How do you interpret the sign and size of a PED value, and how does consumer expenditure relate to firms' revenue?
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How do you interpret the sign of a calculated YED or XED value?
Process
How do production costs and substitutes in production affect supply?
Process
How do the number of firms, taxes and regulations affect market supply?
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What shape is the supply curve, why do higher prices raise profits, and for which goods do weather conditions matter most?
Process
What happens to the market supply curve when new firms enter the market?
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How is price elasticity of supply calculated, and when is supply elastic?
Evaluation
How would you interpret a price elasticity of supply of 0.4?
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How would you interpret a calculated PES of 2.5, and why is supply less responsive when production takes a long time?
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How does the mobility of factors of production affect price elasticity of supply?
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What are excess demand and excess supply, and how do buyers behave in a shortage?
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How does a rising price remove excess demand from a market?
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How does a falling price remove excess supply?
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What happens to equilibrium price and quantity when the supply curve shifts to the left?
Evaluation
If both demand and supply increase simultaneously, what can be said about the effect on equilibrium quantity and price?
Numbers
How does a change in one good's price shift demand for its substitutes and complements?
Process
What is joint supply, and how do you analyse a change in a related market?
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What is the final step when analysing the impact of a change in one market on a related market?
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State the formula for calculating price elasticity of demand.
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State the formula for calculating income elasticity of demand.
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State the formula for calculating cross elasticity of demand.
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State the formula for total revenue.
Take Price Determination in a Competitive Market further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Extension of demand vs Increase in demand
Extension of demand: greater quantity bought following a price fall. Increase in demand: greater willingness to buy at every price.
Substitute good vs Complementary good
Substitute good: an alternative consumed instead of another product. Complementary good: a product consumed jointly with another product.
Price ceiling vs Price floor
Price ceiling: a legal maximum imposed on a price. Price floor: a legal minimum imposed on a price.
Questions from this topic
Each one with the model answer underneath.
- 1
What is the definition of demand in economics?
Model answer
Demand is the quantity of a good or service that consumers are willing and able to purchase at a given price in a given time period.
- 2
How is a demand curve constructed in terms of its axes?
Model answer
A demand curve shows the relationship between the price of a good (on the vertical axis) and the quantity demanded (on the horizontal axis).
- 3
What is the typical shape of a demand curve and what does this indicate?
Model answer
The demand curve typically slopes downward from left to right, indicating an inverse relationship between price and quantity demanded.
- 4
What causes a movement along the demand curve?
Model answer
A movement along the demand curve occurs when there is a change in the price of the good itself, causing a change in quantity demanded.
- 5
What causes a shift of the demand curve?
Model answer
A shift of the demand curve occurs when a non-price factor changes, causing the entire curve to move left or right.
- 6
Explain the relationship between price and quantity demanded, ceteris paribus.
Model answer
As price rises, quantity demanded falls, and vice versa, ceteris paribus. This is the inverse relationship shown by the demand curve.
What is inside Levo
Six ways to work the same material.
Price Determination in a Competitive Market revision questions
- Is Price Determination in a Competitive Market examined at AS in AQA Economics?
- Yes. It sits in Papers 1 and 3, which you take in the first year, so it is on the AS paper as well as counting towards the full A level.
- What does Price Determination in a Competitive Market cover in AQA AS-Level Economics?
- 10 subtopics: demand, the demand curve, income and wealth, substitutes, complements and consumer preferences, price elasticity of demand and total revenue, the determinants of price elasticity of demand, income and cross elasticity of demand, the determinants of supply, price elasticity of supply, equilibrium, disequilibrium and how a market clears, shifts in demand and supply, and the price mechanism and the interrelationship between markets. Each one has its own page with questions and model answers.
- How is Price Determination in a Competitive Market organised?
- By the AQA 7136 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in Price Determination in a Competitive Market, on a schedule.
Attempt a question from memory, write the correct version, then attempt it again. Levo records the jump between your first attempt and your last, and brings each question back on the day you are due to forget it.
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