Syllabus: AQA AS Economics
Module: The Operation of Markets and Market Failure
Lesson: 3.1.2 Price Determination in a Competitive Market

Introduction

This lesson directly supports Section 3.1.2 of the AQA AS Economics syllabus​, focused on how market prices are determined through the interaction of supply and demand. Students develop critical understanding of market mechanisms, equilibrium, and the factors influencing changes in price and quantity. Given the importance of price mechanisms in explaining everyday economic behaviours and policies, this topic is central to building a real-world understanding of economics early in the course.

Key Concepts

• Determinants of Demand: Factors like price, income, wealth, substitutes, complements, tastes, and demographic changes​.

• Determinants of Supply: Production costs, technological change, indirect taxes, subsidies, and external shocks.

• Elasticities: Understanding and calculating price, income, and cross elasticities of demand, and price elasticity of supply.

• Equilibrium: How the interaction of demand and supply determines market price and quantity​.

• Disequilibrium: Causes and outcomes of excess supply and excess demand.

• Market Interrelationships: Impact of changes in one market on others through substitute, complementary, and derived demands.

Students should be able to use demand and supply diagrams, calculate elasticities, and explain shifts and movements along curves with reference to real data.

Real-World Relevance

Price determination is visible daily:

• Energy Markets: Sharp fluctuations in global oil and gas prices following geopolitical instability show supply shocks leading to price rises.

• Housing: UK property markets illustrate how changes in income, interest rates, and demographic trends drive shifts in both supply and demand.

• Food Retail: Seasonal changes in the supply of fresh produce or consumer trends towards plant-based diets cause dynamic price movements.

Using relatable, current examples helps students see that supply and demand are not just theoretical curves but active forces shaping their world.

How It’s Assessed

Assessment of this topic typically includes:

• Short-Answer Questions: Define key terms (e.g., “What is price elasticity of demand?”).

• Data Response Questions: Interpret supply and demand graphs or respond to scenarios.

• Diagram-Based Questions: Draw and manipulate demand and supply curves.

• Extended Responses: Evaluate the impact of external events on equilibrium price and quantity.

Key command words students should focus on include explain, analyse, interpret, and evaluate​.

Enterprise Skills Integration

Teaching this topic offers a strong platform for building enterprise skills such as:

• Problem-Solving: Analysing shifts in supply and demand to propose market interventions.

• Decision-Making: Judging the likely effects of a tax or subsidy on market outcomes.

• Critical Thinking: Challenging assumptions behind supply and demand models when applied to imperfect real-world markets.

Tools like our MarketScope AI can support students in applying these skills by simulating shifts in real-time market scenarios (plug-and-play, minimal setup).

Careers Links

Understanding price determination directly supports:

• Gatsby Benchmarks 4 and 5: Linking curriculum learning to careers and employer encounters.

• Career Pathways: Roles in market analysis, business consultancy, public sector economic advisory, supply chain management, and financial services.

• Employability Skills: Quantitative analysis, interpreting real-world data, and commercial awareness.

Students practising market analysis are also building foundations for economics, finance, and business courses post-16 and at university.

Teaching Notes

Tips for Success:

• Use Live Examples: Bring in real news articles or case studies weekly.

• Graph Practice: Regularly practise drawing and interpreting shifts and elasticity impacts.

• Elasticity Games: Use quick quizzes or interactive modelling to test understanding of elasticity types.

Common Pitfalls:

• Confusing movements along curves (price changes) with shifts of curves (non-price determinants).

• Misinterpreting elasticity values (e.g., mistaking elastic demand for inelastic).

Extension Activities:

• Market Simulations: Run a classroom auction or mock market to demonstrate price discovery.

• Cross-Market Analysis: Ask students to map how a change in oil prices could impact airline ticket prices or grocery costs.