Syllabus: Cambridge - International AS & A Level Business
Module: 3.1 The Nature of Marketing
Lesson: 3.1.2 Demand and Supply

Introduction

In the Cambridge International AS & A Level Business syllabus, section 3.1.2 Demand and Supply forms part of The nature of marketing. This topic builds the foundation for understanding how market forces determine prices, quantities, and business strategy. It directly links to decision-making in marketing, pricing, and production, making it essential for exam success and real-world business application. Students need to grasp not only the theory of demand and supply but also how changes in these forces influence business performance and strategic choices.

Key Concepts

• Effective demand – the willingness and ability of consumers to purchase a good or service.

• Determinants of demand – factors such as price, income, tastes, advertising, and prices of related goods.

• Determinants of supply – factors such as production costs, technology, government taxes or subsidies, and natural conditions.

• Shifts vs movements – a movement along the curve is caused by a price change; a shift occurs when other determinants change.

• Market equilibrium – the price and quantity where demand equals supply.

• Disequilibrium – excess demand (shortages) or excess supply (surpluses).

• Price mechanism functions – rationing, signalling, and incentivising resource allocation.

• Elasticities – responsiveness of demand or supply to changes in price or other variables.

• Interrelated markets – joint demand, substitute products, derived demand, and joint supply.

Real-World Relevance

Understanding demand and supply enables students to analyse current market situations.
Example: The surge in global cocoa prices in 2024, driven by poor harvests in West Africa (reduced supply) and consistent global demand, illustrates how shortages push prices up, affecting chocolate manufacturers’ costs and retail prices. Similarly, during the COVID-19 pandemic, shifts in consumer demand for home office equipment reshaped supply chains and influenced retail strategies. These examples can be woven into class discussions to make abstract graphs and curves more tangible.

How It’s Assessed

In Cambridge assessments, students may encounter:

• Data-response questions requiring analysis of demand and supply diagrams.

• Short-answer questions testing definitions, causes of shifts, and elasticity calculations.

• Essay questions asking for evaluation of market changes and business responses.
  Command words like analyse, evaluate, and discuss require structured reasoning, supported by real-world examples and clear diagrammatic explanation. Marks are awarded for both theoretical knowledge and application to given scenarios.

Enterprise Skills Integration

Enterprise Skills tools can turn this topic from theory-heavy to experience-led. A Business Simulation on product pricing can show students how altering price points affects demand, revenue, and market share, reinforcing elasticity concepts through decision-making under pressure. Skills developed include:

• Critical thinking – interpreting market data to predict changes.

• Decision-making – balancing price, demand, and profitability.

• Commercial awareness – understanding the interplay between supply conditions and competitive positioning.

Careers Links

Demand and supply analysis is a core competency for careers in:

• Marketing and product management – setting optimal pricing strategies.

• Economics and market research – forecasting consumer trends.

• Procurement and supply chain management – responding to supply fluctuations.

• Entrepreneurship – adapting business models to changing market forces.
  This aligns with Gatsby Benchmarks 4, 5, and 6 by linking curriculum content with employer expectations and workplace relevance.

Teaching Notes

• Start visually – introduce the topic with a recent market news story and a simple supply-demand graph.

• Use simulations – allow students to test pricing strategies and observe outcomes.

• Common pitfalls – students often confuse shifts with movements along curves; reinforce this distinction with varied scenarios.

• Differentiation – provide scaffolded diagrams for less confident learners while challenging advanced students with elasticity calculations and multi-market interdependencies.

• Extension activity – ask students to research a commodity market (e.g., oil, coffee) and present a demand and supply analysis including external factors and possible business responses.