Syllabus: AQA - AS and A Level Economics
Module: 3.1.2 Price Determination in a Competitive market
Lesson: 3.1.2.6 The Interrelationship between Markets

 

Introduction

This article unpacks section 3.1.2.6 of the AQA AS and A Level Economics specification, which explores The Interrelationship Between Markets. It’s a key part of the “Price Determination in a Competitive Market” unit and forms a foundation for understanding how decisions in one market ripple through others. Students are expected to develop confidence in applying demand and supply theory to interconnected goods and services — a skill that underpins both microeconomic understanding and real-world decision-making.

This topic builds directly on prior learning about market equilibrium and elasticity, encouraging learners to think more holistically about how markets behave in a complex economy.

Key Concepts

The AQA specification outlines several key ideas that students must understand in this section:

• Interconnectedness of Markets: A change in supply, demand, or price in one market can affect other related markets.

• Types of Market Relationships:

  • Joint Demand: Two goods consumed together (e.g. smartphones and apps).

  • Substitute Goods: Goods that can replace each other (e.g. butter and margarine).

  • Composite Demand: When a good is demanded for multiple uses (e.g. milk for drinking and cheese-making).

  • Derived Demand: Demand for a good due to its use in the production of another (e.g. steel for cars).

  • Joint Supply: Producing one good automatically results in another (e.g. beef and leather).

• Price Transmission: How price changes in one market (e.g. crude oil) influence others (e.g. petrol, plastic packaging).

Students should be able to use supply and demand diagrams to explore these connections and analyse shifts in equilibrium across markets.

Real-World Relevance

Understanding interrelationships between markets helps students make sense of daily news and major economic trends. Some recent examples include:

• Energy Markets: A spike in natural gas prices in 2022 increased costs for fertiliser production, which in turn raised food prices globally — a classic example of derived and composite demand.

• Automotive Industry: A shortage of semiconductors slowed car production, which affected second-hand car prices and insurance markets — showcasing joint and derived demand relationships.

• Climate Policy: Subsidies for electric vehicles have impacted both oil demand and lithium mining — a clear intermarket ripple effect.

These examples help students see economics not as a set of isolated models, but as an interconnected system with real stakes.

How It’s Assessed

In AQA exams, this topic typically appears in Paper 1 (microeconomics). Students may face:

• Data response questions requiring application of intermarket analysis to case studies or economic news articles.

• Diagram-based questions, where shifts in demand/supply must be drawn and explained in one market as a result of changes in another.

• Extended written answers, often with the command words “explain,” “analyse,” or “evaluate,” which call for clear chains of reasoning.

Students are expected to use accurate diagrams and terminology, and to demonstrate how one change leads to multiple knock-on effects in related markets.

Enterprise Skills Integration

This topic lends itself well to real-world thinking and active learning — ideal for integrating enterprise skills:

• Decision-Making: Analysing the knock-on effect of market changes builds commercial awareness and the ability to assess multiple variables.

• Problem-Solving: Students learn to trace complex supply chains and identify root causes of economic events.

• Systems Thinking: Recognising how seemingly disconnected sectors (like oil and food) influence each other supports strategic thinking.

Enterprise Skills’ Business Simulations are especially effective here. Students can run virtual companies and face scenarios where they must respond to changes in other markets — e.g. rising labour costs, material shortages, or substitute competition. It’s a plug-and-play way to bring this abstract topic to life with zero extra planning.

Careers Links

This topic provides strong links to multiple Gatsby Benchmarks, particularly:

• Benchmark 4 (Linking curriculum learning to careers): Students gain insight into roles where understanding market relationships is critical — such as:

  • Supply Chain Analyst

  • Pricing Strategist

  • Procurement Manager

  • Economic Consultant

  • Marketing Executive

• Benchmark 5 & 6: Enterprise Skills simulations offer meaningful workplace encounters and employer-style decision-making without needing real-world placements.

Encouraging students to explore these roles helps them understand the purpose behind the theory — especially for those not immediately drawn to economics on paper.

Teaching Notes

Here are some practical tips to deliver this topic effectively:

What works:

• Use linked case studies — e.g. how rising energy costs affect multiple markets.

• Get students to map relationships between goods using diagrams and arrows.

• Introduce the concept of “economic dominoes” — what falls when one market changes?

Common pitfalls:

• Students often assume a change in one market has only a direct effect, ignoring indirect consequences.

• Diagrams can become messy if too many shifts are attempted at once — focus on one change per diagram.

Extension activities:

• Challenge students to research a recent economic event (e.g. COVID-19 impact on air travel) and trace its impact across at least three different markets.

• Use Skills Hub tools to test understanding through scaffolded activities and self-marking tasks — ideal for homework or recap.