How markets work

AQA

GCSE

The fundamental study of Microeconomics focusing on how the forces of supply and demand interact to allocate scarce resources through the price mechanism. This component examines the behavior of consumers and producers, the determination of market equilibrium prices, and how markets adjust to changes in external variables. It establishes the theoretical framework for understanding market efficiency and the rationale for government intervention.

Objectives

Exam Tips

Pitfalls

Key Terms

Mark Points

Learning Objectives

What you need to know and understand

Needs and wants
Factors of production
Opportunity cost
Market mechanism
Primary/Secondary/Tertiary sectors
Division of labour
Supply and demand
Equilibrium price
Price elasticity of demand/supply
Fixed/Variable costs
Profit maximization
Economies of scale
Market structures
Wage determination
Market failure
Externalities
Government intervention

Key Terminology

Essential terms to know

Ready to test yourself?

Practice questions tailored to this topic

How markets work

Learning Objectives

Key Terminology

{"theme":"The Price Mechanism","description":"The invisible hand that guides resource allocation through three key functions: signaling (prices signal where resources are needed), incentives (higher prices encourage production), and rationing (prices limit demand to available supply)."}

{"theme":"Rational Decision Making","description":"The assumption that economic agents (consumers and firms) aim to maximize utility and profit respectively, and the limitations of this assumption explored through Behavioral Economics."}

{"theme":"Elasticity and Responsiveness","description":"Measuring the responsiveness of quantity demanded or supplied to changes in variables such as price (PED/PES), income (YED), and the price of related goods (XED)."}

{"theme":"Market Equilibrium and Disequilibrium","description":"The state where supply equals demand (market clearing) versus states of excess supply or excess demand, and the dynamic adjustments required to return to stability."}

Ready to test yourself?