Syllabus: AQA A-level Economics
Module: Individuals, Firms, Markets and Market Failure
Lesson: 4.1.3 Price Determination in a Competitive Market
Jump to Section:
Introduction
This lesson focuses on Section 4.1.3 of the AQA A-level Economics specification: Price determination in a competitive market. It extends the fundamental principles introduced in Section 3.1.2. Students explore how the forces of supply and demand interact to set market prices, how markets respond to changes, and the broader implications of these movements. This topic is central to mastering microeconomic models and critical for success in both Paper 1 and Paper 3 of the AQA A-level assessments. Understanding price determination is foundational, connecting clearly to market failure, government intervention, and broader economic performance discussions later in the course.
Key Concepts
Determinants of Demand: Students analyse factors influencing demand such as price, income, tastes, the price of substitutes, and complementary goods.
Determinants of Supply: Focus on production costs, technology, expectations, and number of sellers.
Elasticity: Explore price elasticity of demand (PED) and supply (PES) to understand responsiveness.
Equilibrium Price: Understand how equilibrium is established through the interaction of supply and demand, and how it adjusts to changes.
Disequilibrium Situations: Examine excess supply (surpluses) and excess demand (shortages), including how price acts to restore balance.
Interrelationships Between Markets: Develop an understanding of concepts such as joint demand, substitute and complementary goods, composite demand, and derived demand.
Real-World Relevance
Price determination is not just theoretical. For example:
Housing Markets: Rising demand for housing (driven by population growth and investment trends) against a relatively inelastic supply has caused steep increases in property prices across UK cities.
Energy Prices: In 2022–23, global energy supply shocks (e.g., the war in Ukraine) caused spikes in energy prices. These changes can be modelled by shifts in the supply curve for gas and electricity.
Agricultural Goods: Extreme weather affecting wheat production illustrates how supply shocks can drive up prices, reinforcing the importance of understanding elasticity.
Using recent, relatable examples like these can help students see the practical applications of diagrams and theory.
How It’s Assessed
In the AQA A-level Economics exams:
Question Types: Expect a mix of multiple-choice, short-answer, data response, and essay questions.
Command Words: Look out for “Explain”, “Analyse”, and “Evaluate”, each requiring increasingly sophisticated use of knowledge and critical thinking.
Skills Required: Students must be comfortable drawing and interpreting supply and demand diagrams, calculating elasticities, and linking theory to real-world cases.
Typical Questions:
Draw and explain a shift in supply and its impact on price and quantity.
Calculate and interpret PED from given data.
Evaluate the impact of a maximum price policy on a competitive market.
Enterprise Skills Integration
Teaching price determination naturally supports several enterprise skills:
Problem-Solving: Analysing market shifts and predicting outcomes requires applying theory to unfamiliar scenarios.
Decision-Making: Evaluating different outcomes based on elasticity, government intervention, or external shocks strengthens strategic thinking.
Critical Thinking: Understanding the assumptions behind the models and recognising when they break down in the real world helps build economic reasoning. You could use Enterprise Skills’ MarketScope AI simulation tool here, allowing students to adjust supply or demand factors and see real-time impacts on equilibrium. It is plug-and-play and syllabus-aligned.
Careers Links
This topic links strongly to several Gatsby Benchmarks:
Benchmark 4: Linking Curriculum to Careers: Price determination relates directly to roles in financial services, government policy advisory, market research analysis, and consultancy.
Benchmark 5: Encounters with Employers: Invite a local estate agent, food retailer, or energy analyst to discuss real-world pricing decisions. Careers pathways linked to this topic include economist, policy adviser, financial analyst, marketing strategist, and business consultant.
Teaching Notes
Teaching Tip: Start lessons with a recent news story showing a real-world market shift, then link it back to supply and demand theory. This hooks students immediately and contextualises their learning.
Common Pitfalls: Students often confuse shifts with movements along curves. Use clear scaffolded diagrams and varied examples to reinforce the difference.
Extension Activity: Challenge higher ability students to evaluate government interventions in markets experiencing disequilibrium, e.g., rent controls in housing markets.
Differentiation: Scaffold drawing and interpreting graphs for mixed ability groups by providing partially completed diagrams early on, then gradually reducing the support.
Assessment Prep: Integrate quick, low-stakes quizzes on elasticity calculations and diagram analysis to build fluency without adding to students’ workload.
