Role of Markets

Topics Covered in Unit 2. The role of markets and money

2.1 The role of markets

• explain what is meant by a market
• explain the features of the primary, secondary and tertiary sectors, including the difference between the production of products and services
• explain the difference between factor and product markets, including their interdependence
• evaluate the costs and benefits of specialisation and exchange in markets including for producers, workers, regions and countries

2.2 Demand

• explain what is meant by demand
• draw and explain a demand curve using data, including individual and market demand
• draw shifts of, and movements along, the demand curve
• analyse the causes and consequences for consumers and producers, of shifts of, and movements along, the demand curve
• explain price elasticity of demand
• draw demand curves of different elasticity
• evaluate the importance of price elasticity of demand for consumers and producers

2.3 Supply

• explain what is meant by supply
• draw and explain a supply curve using data, including individual and market supply
• draw shifts of, and movements along, the supply curve
• analyse the causes and consequences for consumers and producers, of shifts of, and movements along, the supply curve
• explain price elasticity of supply
• draw supply curves of different elasticity
• evaluate the importance of price elasticity of supply for consumers and producers

2.4 Price

• explain price as a reflection of worth and its role in determining an efficient distribution of resources
• explain what is meant by equilibrium price and quantity
• draw and analyse the interaction of demand and supply
• explain the role of markets in the determination of price and the allocation of resources
• analyse how the market forces of demand and supply affect equilibrium price and quantity

2.5 Competition

• explain competition between producers in a market economy, including the reasons why producers compete
• analyse how competition affects price
• evaluate the economic impact of competition on producers and consumers
• explain the meaning of monopoly and oligopoly and how they differ from competitive markets

2.6 Production

• explain the role of producers, including individuals, firms and the government 
• evaluate the importance of production and productivity for the economy
• calculate and explain total cost, average cost, total revenue, average revenue, profit and loss
• evaluate the importance of cost, revenue, profit and loss for producers, including how costs and revenues affect profit and supply
• explain what is meant by economies of scale

2.7 The labour market

• explain the role and operation of the labour market, including the interaction between workers and employers
• analyse the determination of wages through supply and demand, including factors affecting the supply and demand of labour
• explain and calculate gross and net pay, including deductions through income tax, national insurance and pension contributions

2.8 The role of money and financial markets

• explain the role of money as a medium of exchange
• explain the role of the financial sector for the economy, including financial institutions such as banks, building societies and insurance companies
• evaluate the importance of the financial sector for consumers, producers and government
• analyse how different interest rates affect the levels of saving, borrowing and investment
• calculate the effect on savings and borrowings of changes in the rate of interest