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ScotlandEconomics

Economics of the Market

8 dot points across 8 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

When do free markets fail to allocate resources well, and how can government put it right?

Market failure and intervention: the causes of market failure (externalities, public goods, merit and demerit goods, monopoly power, information failure) and the ways government intervenes to correct it.
An SQA Higher Economics answer on market failure and intervention, covering negative and positive externalities, public goods, merit and demerit goods, monopoly power and information failure, and the government responses of taxes, subsidies, regulation, provision and information campaigns, with their limitations.
13 min answer →

How does the number and power of firms in a market shape prices, choice and competition?

Market structures: the characteristics of perfect competition, monopolistic competition, oligopoly and monopoly, and their effects on price, output, choice and efficiency.
An SQA Higher Economics answer on market structures, covering the spectrum from perfect competition through monopolistic competition and oligopoly to monopoly, the characteristics of each, and their effects on price, output, consumer choice, efficiency and barriers to entry.
12 min answer →

How do demand and supply together set a market price, and what happens when they change?

Markets and price determination: market equilibrium where demand meets supply, the effect of shifts in demand and supply on price and quantity, and the price mechanism as a way of allocating resources.
An SQA Higher Economics answer on price determination, covering market equilibrium where demand and supply meet, surpluses and shortages, how shifts in demand or supply change the equilibrium price and quantity, and the rationing, signalling and incentive functions of the price mechanism.
12 min answer →

How sharply do buyers and sellers react to a change in price or income, and why does it matter?

Elasticity: price elasticity of demand and its calculation and determinants, the link to total revenue, and price elasticity of supply, income elasticity and cross elasticity.
An SQA Higher Economics answer on elasticity, covering how to calculate price elasticity of demand and interpret it, the factors that make demand elastic or inelastic, the link between PED and total revenue, and price elasticity of supply, income elasticity and cross elasticity of demand.
13 min answer →

How do firms turn inputs into output, and what happens to their costs as they grow?

Production and costs: production and productivity, fixed and variable costs, total, average and marginal cost, revenue and profit, and economies and diseconomies of scale.
An SQA Higher Economics answer on production and costs, covering production and productivity, the difference between fixed and variable costs, total, average and marginal cost, total and average revenue, the meaning of profit, and economies and diseconomies of scale.
12 min answer →

Why must every economy choose, and what does each choice cost?

The basic economic problem of scarcity and choice, opportunity cost, the factors of production, and the use of production possibility diagrams to model trade-offs.
An SQA Higher Economics answer on the basic economic problem, covering scarcity and choice, opportunity cost, the four factors of production and their rewards, and how a production possibility diagram models trade-offs, full employment, growth and the costs of unemployment.
12 min answer →

What lies behind a demand curve, and what makes the whole curve move?

The theory of demand: the law of demand, the demand curve, the difference between a movement along and a shift of the curve, and the non-price determinants of demand.
An SQA Higher Economics answer on the theory of demand, covering the law of demand and why the demand curve slopes down, the crucial difference between a movement along the curve and a shift of it, and the non-price determinants of demand such as income, the prices of substitutes and complements, tastes and expectations.
12 min answer →

Why do producers supply more at higher prices, and what shifts the whole supply curve?

The theory of supply: the law of supply, the supply curve, the difference between a movement along and a shift of the curve, and the non-price determinants of supply.
An SQA Higher Economics answer on the theory of supply, covering the law of supply and why the supply curve slopes up, the difference between a movement along the curve and a shift, and the non-price determinants of supply such as costs of production, technology, taxes and subsidies, and the price of other goods.
11 min answer →