AQA A Level Economics
AQA A Level Economics 3.1.3 Price Determination in a Competitive Market Exam Questions
Free AQA A Level Economics exam questions for 3.1.3 Price Determination in a Competitive Market, with a mark scheme for every pack. Covers determinants of demand and supply, price, income and cross elasticities, elasticity of supply, market equilibrium and interrelationships between markets.
3.1.3 Price Determination in a Competitive Market exam questions
1 question pack of real past exam questions, each with its mark scheme. Do not stop after a few: answer as many as you can without notes, then mark every answer with the mark scheme. The more questions you do, the more quickly you will spot how examiners ask about each idea.
About AQA A Level Economics 3.1.3 Price Determination in a Competitive Market
Price determination in a competitive market is section 3.1.3 of AQA A Level Economics and is examined on Paper 1. It covers the determinants of demand and supply, the difference between movements along and shifts of curves, price, income and cross elasticities of demand, price elasticity of supply, how equilibrium is set and how changes in conditions affect price and quantity. It finishes with interrelationships between markets: joint demand, composite demand, derived demand and joint supply. This is the foundation for almost every microeconomic topic, including market failure and labour markets, so examiners expect accurate diagrams, correct elasticity calculations and clear chains of reasoning.
What you need to know
- Demand Demand is the quantity consumers are willing and able to buy at each price. Price changes cause movements along the curve; changes in income, prices of substitutes and complements, tastes and population shift it. Normal goods have positive income elasticity and inferior goods negative.
- Elasticities of demand PED = percentage change in quantity demanded / percentage change in price. YED uses the change in income and XED uses the change in price of another good (positive for substitutes, negative for complements). Know the factors affecting PED and its link to total revenue.
- Supply Supply is the quantity firms are willing and able to sell at each price. Shifts are caused by changes in costs of production, technology, indirect taxes, subsidies and the number of firms. PES depends on spare capacity, stocks, time and the ease of switching factors.
- Equilibrium Equilibrium is where demand equals supply; excess demand pushes price up and excess supply pushes it down. Price acts as a signalling, incentive and rationing device. Consumer and producer surplus can be shown on the diagram.
- Interrelated markets Joint demand (complements such as cars and petrol), composite demand (a good with several uses such as milk), derived demand (labour or steel demanded for what it produces) and joint supply (beef and leather) mean a change in one market affects another.
Common mistakes in 3.1.3 Price Determination in a Competitive Market
- Writing that a rise in price shifts the demand curve left. A change in the good's own price causes a contraction along the curve, not a shift.
- Dividing the percentage change in price by the percentage change in quantity for PED. Quantity always goes on top.
- Calling PED of -0.6 elastic because it is negative. It is price inelastic because the absolute value is less than 1.
- Saying a rise in demand leads to a rise in supply. Higher demand causes an extension along the supply curve, not a shift.
- Drawing diagrams without labels. Label axes, curves, original and new equilibrium price and quantity, and refer to the diagram in your explanation.
Try three 3.1.3 Price Determination in a Competitive Market exam-style questions
1. The price of a good rises from 4 pounds to 5 pounds and quantity demanded falls from 200 to 170 units. Calculate PED and explain what happens to total revenue. (4 marks)
Show the mark scheme answer
Percentage change in quantity = -30/200 = -15 percent; percentage change in price = 25 percent; PED = -15/25 = -0.6, price inelastic; total revenue rises from 800 pounds to 850 pounds because quantity falls proportionately less than price rises.
2. Using a diagram, explain the likely effect on the market for electric cars of a fall in the cost of batteries. (6 marks)
Show the mark scheme answer
Batteries are a major input so costs of production fall; supply shifts to the right; at the old price there is excess supply; price falls and quantity demanded extends; new equilibrium at lower price and higher quantity; diagram correctly drawn and labelled.
3. Explain what is meant by derived demand, using an example. (3 marks)
Show the mark scheme answer
Derived demand is demand for a good or factor because of the demand for what it helps to produce; for example demand for construction workers depends on demand for new housing; a rise in house demand raises demand for these workers.
3.1.3 Price Determination in a Competitive Market FAQs
What does AQA A Level Economics 3.1.3 cover?
It covers demand, supply and equilibrium, price, income and cross elasticities of demand, price elasticity of supply, and how markets are linked through joint, composite and derived demand and joint supply.
Which paper is 3.1.3 examined in?
It is assessed on Paper 1, Markets and market failure, and can also appear on Paper 3, Economic principles and issues, which draws on the whole specification.
What calculations do I need for this topic?
Practise percentage changes, PED, YED, XED and PES, and use PED to predict what happens to total revenue. Always state whether the result is elastic or inelastic and explain what the sign means.
