How Markets Work | Edexcel A-Level Economics A (9EC0)

How Markets Work

224 questions
16 subtopics
Theme 1: introduction to markets and market failure
Paper 1 and Paper 3

Covers the machinery of supply and demand: what shifts each curve, the four elasticities and what they are used for, how equilibrium is reached, and what an indirect tax or a subsidy does to price and quantity..

It covers rational decision making, demand, price, income and cross elasticity: formulae and values, interpreting income and cross elasticity of demand, what determines the elasticity of demand, using elasticities: taxes, subsidies and business planning, elasticity and total revenue, supply, price elasticity of supply and its values, what determines elasticity of supply, and the short and long run, price determination, price mechanism, consumer and producer surplus, indirect taxes and the incidence of a tax, subsidies and how their benefit is shared and alternative views of consumer behaviour.

Sample questions from How Markets Work

Answer each one closed book first, then open the answer.

Rational decision making

What objective does the rational decision-making model assume firms pursue?

Show the answer
Profit maximisation
Price, income and cross elasticity: formulae and values

What variable appears in the denominator of the YED formula?

Show the answer
The percentage change in income.
What determines the elasticity of demand

How does the time period affect PED?

Show the answer
Demand becomes more elastic over longer time periods as consumers have more time to find alternatives.
Elasticity and total revenue

What two variables are multiplied together to calculate total revenue?

Show the answer
Price and quantity sold.
Price elasticity of supply and its values

If the percentage change in quantity supplied is greater than the percentage change in price, what does this indicate about PES?

Show the answer
PES is greater than 1, meaning supply is price elastic.
Price determination

How is excess supply represented on a supply and demand diagram?

Show the answer
As the horizontal distance between the supply curve and the demand curve at a price above equilibrium.
Consumer and producer surplus

Why does the supply curve form the lower boundary of the producer surplus area?

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The supply curve represents the minimum price producers are willing to accept for each unit; any price received above this minimum contributes to their surplus, so the area starts from the supply curve upward.
Subsidies and how their benefit is shared

What happens to the quantity consumed when a subsidy is introduced?

Show the answer
The quantity consumed increases.

The 16 subtopics

One subtopic is one session. Work down the list.

Subtopic	What it covers	Questions
Rational decision making	Recall questions on the assumption that consumers maximise utility and firms maximise profit, and what rationality is taken to mean.	9
Demand	Recall questions on movements along and shifts of the demand curve, the conditions of demand that shift it, and how diminishing marginal utility explains why the curve slopes downward.	15
Price, income and cross elasticity: formulae and values	Recall questions on the formulae for PED, YED and XED, why PED is negative, and what perfectly elastic, unit elastic and perfectly inelastic mean.	18
Interpreting income and cross elasticity of demand	Recall questions on normal, inferior, luxury and necessity goods, and on what a positive, negative or zero cross elasticity says about two goods.	13
What determines the elasticity of demand	Recall questions on substitutes, the share of income spent, the time period, and how the definition of the market changes the answer.	8
Using elasticities: taxes, subsidies and business planning	Recall questions on why governments use PED when setting indirect taxes, and how firms use YED and XED in planning.	10
Elasticity and total revenue	Recall questions on how a price change affects total revenue at different elasticities, and where revenue is maximised.	12
Supply	Recall questions on the law of supply, movements against shifts, and the factors that shift the supply curve.	14
Price elasticity of supply and its values	Recall questions on the PES formula, why it is positive, and the range of values from perfectly inelastic to perfectly elastic.	16
What determines elasticity of supply, and the short and long run	Recall questions on spare capacity, stocks, factor mobility and the time period, and on what separates the short run from the long run.	12
Price determination	Recall questions on equilibrium price and quantity, excess demand and excess supply, and how the market moves back to equilibrium after a shift.	21
Price mechanism	Recall questions on the rationing, signalling and incentive functions of price, and how they allocate resources between markets.	15
Consumer and producer surplus	Recall questions on what each surplus represents on a diagram and how a shift in demand or supply changes it.	18
Indirect taxes and the incidence of a tax	Recall questions on specific and ad valorem taxes, how each shifts supply, and how elasticity decides who bears the burden.	18
Subsidies and how their benefit is shared	Recall questions on what a subsidy does to price and quantity, how it appears on a diagram, and how elasticity decides who gains.	14
Alternative views of consumer behaviour	Recall questions on why consumers depart from rationality: the influence of others, habitual behaviour and weakness at computation.	11

How Markets Work is 224 of the 2,508 questions in the guide.Get the guide, £8

How the guide is worked

Answering a question from memory stores it far better than reading the answer again. The guide runs that as a fixed procedure on one subtopic at a time, about twenty minutes a session.

Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
Step 2 · Open book
Go back to the top. Read each printed answer and write it out in full, including the ones you had right.
Step 3 · Closed book again
Same questions, same order, from memory. The gap between pass one and pass three is the session result.

Read the full method, the return schedule and the research behind it.