1.1 The market system
- Syllabus
- 2026
- Section
- 1.1
- Level
- —
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In this section
Topic 1.1.1
1.1.1 The economic problem
Objectives in this topic
1.1.1.a Scarcity, finite resources and choice
The problem of scarcity – where there are unlimited wants and finite resources, leading to the need to make choices.
1.1.1.b Opportunity cost and its effect on economic agents
Opportunity cost and its effect on economic agents (consumers, producers and government).
1.1.1.c Production possibility curve diagrams
The use of diagrams to show production possibility curve.
1.1.1.d Interpreting production possibility curves
Production possibility curve diagram should be used to show:
- the maximum productive potential of an economy
- fully employed or unemployed resources
- opportunity cost
- positive or negative economic growth that shifts the production possibility frontier (PPF) outwards and inwards
- possible and unobtainable production.
1.1.1.e Causes of positive and negative economic growth
Possible causes of positive or negative economic growth.
Topic 1.1.2
1.1.2 Economic assumptions
Objectives in this topic
1.1.2.a Consumer-benefit and business-profit assumptions
The underlying assumptions that:
- consumers aim to maximise their benefit
- businesses aim to maximise their profit.
1.1.2.b Why consumers may not maximise benefit
Reasons why consumers may not maximise their benefit:
- consumers are not always good at calculating their benefits
- consumers have habits that are hard to give up
- consumers sometimes copy others’ behaviour.
1.1.2.c Why producers may not maximise profit
Reasons why producers may not maximise their profit:
- producers may have managers that revenue maximise or sales maximise
- producers may prioritise caring for customers
- producers may complete charitable work.
Topic 1.1.3
1.1.3 Demand, supply and market equilibrium
Objectives in this topic
1.1.3.a Demand
Definition of demand.
1.1.3.b Movements and shifts on demand curves
The use of demand curve diagram to show:
- changes in price causing movements along a demand curve
- shifts indicating increased and decreased demand.
1.1.3.c Factors that shift demand
Explain factors that may shift the demand curve, including advertising, income, fashion and tastes, prices of substitutes and complements, and demographic change.
1.1.3.d Supply
Definition of supply.
1.1.3.e Movements and shifts on supply curves
The use of supply curve diagram to show:
- changes in price causing movements along a supply curve
- shifts indicating increased and decreased supply.
1.1.3.f Factors that shift supply
Explain factors that may shift the supply curve, including production costs, technology, indirect taxes, subsidies and natural factors such as disasters and weather.
1.1.3.g Equilibrium price and quantity and how they are determined
Equilibrium price and quantity and how they are determined.
1.1.3.h Market equilibrium, excess demand and excess supply diagrams
The use of diagrams to show:
- how shifts in supply and demand affect equilibrium price and quantity in real-world situations
- excess demand
- excess supply.
1.1.3.i Calculating and drawing excess demand and excess supply
Define, calculate and draw excess demand and excess supply.
1.1.3.j Market forces removing excess demand or supply
The use of market forces to remove excess supply or excess demand.
Topic 1.1.4
1.1.4 Elasticity
Objectives in this topic
1.1.4.a Price elasticity of demand (PED)
Definition of PED.
1.1.4.b PED formula
Use PED = percentage change in quantity demanded ÷ percentage change in price.
1.1.4.c Calculating PED
Calculate the PED using given percentage changes in quantity demanded and percentage changes in price.
1.1.4.d Price-elastic and price-inelastic demand diagrams
The use of diagrams to show price elastic and price inelastic demand.
1.1.4.e Interpreting PED values
Interpret numerical values of PED that show:
- perfect price inelasticity
- price inelasticity
- unitary price elasticity
- price elasticity
- perfect price elasticity.
1.1.4.f Factors influencing PED
The factors influencing PED, including:
- substitutes
- degree of necessity
- percentage of income spent on goods or service
- time.
1.1.4.g PED and total revenue
Use total-revenue calculations to show how a price change affects total revenue and determine whether demand is price elastic or price inelastic.
1.1.4.h Price elasticity of supply (PES)
Definition of PES.
1.1.4.i PES formula
Use PES = percentage change in quantity supplied ÷ percentage change in price.
1.1.4.j Calculating PES
Calculate the PES using given percentage changes in quantity supplied and percentage changes in price.
1.1.4.k Price-elastic and price-inelastic supply diagrams
The use of diagrams to show price elastic and price inelastic supply.
1.1.4.l Interpreting PES values
Interpret numerical values of PES that show:
- perfect price inelasticity
- price inelasticity
- unitary price elasticity
- price elasticity
- perfect price elasticity.
1.1.4.m Factors influencing PES
The factors influencing PES, including:
- factors of production
- availability of stocks
- spare capacity
- time.
1.1.4.n PES of manufactured and primary products
Use examples to show the likely price elasticity of supply for manufactured products and primary products.
1.1.4.o Income elasticity of demand
Definition of income elasticity of demand.
1.1.4.p Income elasticity of demand formula
Use income elasticity of demand = percentage change in quantity demanded ÷ percentage change in income.
1.1.4.q Calculating income elasticity of demand
Calculate the income elasticity of demand using given percentage changes in quantity demanded and percentage changes in income.
1.1.4.r Interpreting income elasticity values
Interpret numerical values of income elasticity of demand that show:
- luxury goods
- normal goods
- inferior goods.
1.1.4.s Business and government uses of demand elasticities
The significance of price and income elasticities of demand to businesses and the government, in terms of:
- the imposition of indirect taxes and subsidies
- changes in income.
Topic 1.1.5
1.1.5 The mixed economy
Objectives in this topic
1.1.5.a Mixed economy
Definition of mixed economy.
1.1.5.b Public and private sector
Definition of public and private sector.
1.1.5.c Public and private sector ownership, control and aims
Difference between public and private sectors in terms of ownership, control and aims.
1.1.5.d What, how and for whom to produce in a mixed economy
How the problems of what to produce, how to produce and for whom to produce are solved in the mixed economy.
1.1.5.e Market failure and inefficient resource allocation
Concept of market failure – linked to inefficient allocation of resources.
1.1.5.f Why governments intervene in markets
Why governments might need to intervene because of market failure.
1.1.5.g Public goods and the free-rider problem
Define public goods by non-excludability and non-rivalry, and explain how these characteristics cause the free-rider problem.
1.1.5.h Public and private sector roles in production
The role of the public sector and private sectors in the production of goods and services.
1.1.5.i Relative importance of public and private sectors
The relative importance of public sector and private sector in different economies.
1.1.5.j Privatisation
Definition of privatisation.
1.1.5.k Effects of privatisation on stakeholders
Effects of privatisation on:
- consumers
- workers
- businesses
- government.
Topic 1.1.6
1.1.6 Externalities
Objectives in this topic
1.1.6.a External costs
Definition of external costs.
1.1.6.b Examples of external costs
Give and explain examples of external costs, including pollution, congestion and environmental damage.
1.1.6.c External benefits
Definition of external benefits.
1.1.6.d Examples of external benefits
Examples of external benefits, including education, healthcare and vaccinations.
1.1.6.e Social cost and social benefit formulae
Definition and formula for:
- social costs = private costs + external costs
- social benefits = private benefits + external benefits.