Syllabus: Cambridge - IGCSE Economics
Module: 2.5 Price Determination
Lesson: 2.5.2 Market Disequilibrium

Introduction

This article aligns with the Cambridge IGCSE Economics (0455/2281) syllabus, specifically Topic 2.5.2: Market Disequilibrium. It addresses a critical element of market dynamics: what happens when prices are not at equilibrium. This topic underpins learners’ understanding of real-world economic distortions and supports deeper insight into how government intervention, pricing strategies, and resource allocation are applied.

Teaching this unit effectively builds not only economic literacy but also commercial awareness – a key part of career readiness and workplace confidence for all students, not just those pursuing business pathways.

Key Concepts

According to the Cambridge IGCSE Economics syllabus, students should understand:

• What disequilibrium is: A state where market supply and demand are not balanced, leading to either excess supply (surplus) or excess demand (shortage).

• Surpluses: Occur when price is set above the equilibrium point, leading to more being supplied than demanded.

• Shortages: Happen when price is set below equilibrium, resulting in higher demand than supply.

• Price Adjustment Mechanism: How the market tends to correct itself through rising or falling prices to restore equilibrium.

• Role of Government Intervention: How policies like price ceilings and floors can cause or address disequilibrium.

These concepts are fundamental to developing students’ ability to interpret and analyse markets – core skills assessed throughout the Cambridge syllabus.

Real-World Relevance

Market disequilibrium isn’t theoretical – it appears frequently in everyday contexts. For instance:

• UK Housing Market: Persistent excess demand for housing, especially in London and the South East, causes rising prices, highlighting the long-term consequences of disequilibrium.

• Supermarket Milk Pricing: Artificially low prices (price floors) led to excess supply, with dairy farmers struggling to cover production costs.

• COVID-19 PPE Shortages: A classic shortage case – demand spiked far beyond supply, driving up prices and prompting government intervention to regulate and distribute resources.

These examples offer tangible ways for students to connect textbook theory with real-world outcomes, enhancing engagement and relevance.

How It’s Assessed

In IGCSE Economics, this topic is typically assessed in both Paper 1 (Multiple Choice) and Paper 2 (Structured Questions):

• Command words to expect: Explain, Analyse, Give reasons, Draw and label diagrams, Calculate.

• Diagrammatic analysis: Students may be required to draw supply and demand diagrams to show surplus or shortage.

• Short case study questions: Students might analyse how disequilibrium impacts specific goods or services.

• Data response: Interpretation of numerical or graphical data representing excess demand or supply.

Students are expected to demonstrate both technical understanding and the ability to apply concepts in unfamiliar scenarios – a critical element of commercial awareness.

Enterprise Skills Integration

Market disequilibrium connects directly to several core enterprise and career skills:

• Decision-Making & Problem-Solving: Students learn to evaluate corrective actions for market failures – a core workplace skill recognised by employers.

• Strategic Thinking: Understanding how market signals drive pricing decisions improves commercial literacy.

• Data Interpretation: Analysing charts and graphs enhances quantitative reasoning – crucial for business and finance roles.

• Scenario Planning: Students practice considering outcomes of price changes – fostering real-world economic thinking.

These are embedded in tools from Skills Hub Futures and Business Simulations, where students explore real pricing decisions through structured learning journeys.

Careers Links

This topic supports multiple Gatsby Benchmarks:

• Benchmark 4: Links curriculum learning with careers – students explore roles like market analysts, retail buyers, or policy advisers through this topic.

• Benchmark 5: Integration of employer case studies – using examples like housing policy or retail pricing from real firms connects learning with lived industry practice.

• Benchmark 6: Through simulations and workplace scenarios, students experience how pricing affects supply chains and profitability in real-world organisations.

Relevant career pathways include:

• Economist or Policy Advisor (understanding market interventions)

• Retail/Operations Manager (balancing supply and demand)

• Procurement Specialist (responding to market shortages)

• Data Analyst (interpreting economic indicators and trends)

Teaching Notes

Pedagogical Tips:

• Start with visualisation: Use diagrams of supply and demand imbalances to build clarity before introducing theory.

• Mini simulations: Let students play out surplus/shortage scenarios using classroom tokens to simulate supply and demand.

• Case study starters: Pose questions like “Why did PPE run out during the pandemic?” or “Why is rent so high in London?” to spark engagement.

• Use real-time data: Bring in headlines or news stories on price fluctuations to embed relevance.

Common Pitfalls:

• Forgetting the role of price in restoring equilibrium – reinforce that price isn’t static.

• Mislabelled diagrams – practice drawing supply/demand shifts and labelling accurately.

• Confusing government intervention outcomes – clarify when price floors cause surpluses and when ceilings cause shortages.

Extension Activities:

• Enterprise Skills Scenario: “You’re running a supermarket chain. How do you respond to a sudden shortage in a core product?”

• Cross-Curricular Link: Tie in with Geography (housing markets), Citizenship (government policy), or Maths (graph analysis).