How markets work - OCR GCSE Economics (J205) module overview

How markets work (OCR J205 topics 1.4 to 1.7) is the engine room of the microeconomics component. It explains how demand and supply set prices, how responsive markets are to price changes, and how the number of firms in a market shapes prices, choice and efficiency. It is examined in J205/01: Introduction to economics. This page maps the module and links to a focused answer for each dot point.

What this module covers

The module builds the demand and supply model, then uses it to study elasticity and market structure.

• Demand. The law of demand, the downward-sloping curve, movements versus shifts, and the factors that shift demand.
• Supply. The law of supply, the upward-sloping curve, movements versus shifts, and the factors that shift supply.
• Price determination. Equilibrium, surpluses and shortages, solving for equilibrium, and how shifts move price and quantity.
• Price elasticity. Price elasticity of demand and supply, how to calculate and interpret it, and the link to total revenue.
• Competition and its benefits. What competition means and how it affects prices, choice, quality and efficiency.
• Monopoly and oligopoly. How dominant firms differ from competitive markets and their effects on consumers.

The model at the heart of the module

Almost every question uses the demand and supply diagram. Make sure you can:

• draw and label a demand and supply diagram with equilibrium price and quantity,
• show a movement along versus a shift of each curve,
• show a surplus (above equilibrium) and a shortage (below equilibrium),
• solve for equilibrium by setting $Q_d = Q_s$,
• show how a shift in demand or supply moves price and quantity.

How it is assessed

This module is examined in J205/01: Introduction to economics, which is 1 hour 30 minutes, 80 marks and 50% of the GCSE. Expect multiple choice questions, short calculations (equilibrium and elasticity), and longer Explain and Discuss questions on competition and market structure. A calculator is allowed.

How to revise this module

1. Drill the diagram. Practise shifts, movements, surpluses, shortages, taxes and subsidies until they are automatic.
2. Master the calculations. Solve for equilibrium from equations and calculate price elasticity, then interpret the result.
3. Learn the revenue rule. Raise price on inelastic goods, cut price on elastic goods, to raise total revenue.
4. Compare market structures. Be able to argue the benefits of competition and the effects of monopoly and oligopoly, with both sides.

For the official specification

OCR publishes the full specification (J205), past papers and mark schemes at ocr.org.uk. Always revise from the current specification and OCR's own past papers.