HookThe winter Britain rationed eggs
By early 2023 something had happened in Britain that a rich country is not supposed to see: supermarkets were rationing eggs. Asda capped shoppers at two boxes, Lidl and Tesco at three, and shelves that are normally a wall of cartons stood half-empty. The cause was a chain of supply shocks — the worst avian-influenza outbreak the UK had ever recorded forced the culling of millions of hens through 2022, while soaring feed and energy costs made many remaining producers cut flocks or quit. Supply of eggs fell hard, and at the old price there were suddenly far more buyers than eggs.
What happened next is this entire section in one carton. A leftward shift of supply created a shortage — excess demand — at the prevailing price. Prices rose (retail egg prices climbed by roughly a third over the year), which did two things at once: it rationed the scarce eggs towards the buyers who valued them most, and it signalled to producers that eggs were newly profitable, drawing supply back over the following months. Every market you will study is this dance between demand and supply, with price as the variable that clears the shortage or the glut. Master how the two curves are built, how sensitively each responds, and how price pulls them into equilibrium, and you can read any market AQA throws at you.
ModelDemand — and the difference examiners live on
Demand is the quantity buyers are willing and able to purchase at each price in a given period. The demand curve slopes downward, and the single most examined idea in this whole section is the reason for movement along it versus a shift of it. A change in the good's own price causes a movement along the curve — a change in quantity demanded. A change in anything else shifts the whole curve — a change in demand.
The 'anything else' is the conditions of demand, and AQA wants them at your fingertips: real income, the prices of substitutes and complements, tastes and fashion, population size and structure, advertising and branding, expectations of future prices, and interest rates (which swing demand for anything bought on credit — cars, houses, sofas). When mortgage rates jumped through 2022–23, demand for house purchases fell at every price — the curve shifted left, it did not slide down. Getting shift-versus-movement right is the difference between a diagram that earns marks and one that quietly loses them, because the examiner is checking whether you know which curve moves and why.
ModelThe three elasticities of demand
Elasticity measures how sensitively demand responds to a change. There are three, and each divides a percentage change in quantity demanded by the percentage change in a different cause. Price elasticity of demand (PED) = %ΔQd ÷ %ΔP: below 1 in absolute value is inelastic (necessities, addictions, no close substitute), above 1 is elastic. Its determinants are the availability of substitutes (the big one), degree of necessity, proportion of income spent, and time. The payoff is the total revenue rule: if demand is inelastic a price rise raises revenue; if elastic, a price rise destroys it.
Income elasticity of demand (YED) = %ΔQd ÷ %Δincome: positive for normal goods (necessities 0–1, luxuries above 1) and negative for inferior goods, whose demand rises when incomes fall — which is why discount grocers gained share in the 2022–23 squeeze. Cross elasticity of demand (XED) = %ΔQd of good A ÷ %ΔP of good B: positive for substitutes (a dearer Coke lifts Pepsi's demand) and negative for complements (dearer petrol dents demand for gas-guzzling cars). The sign is the whole story with XED — it tells you the relationship between two goods before you even read the number.
Two quick calculations, because AQA hides the marks in the interpretation. Substitutes: the price of butter rises 10% and the quantity of margarine demanded rises 6%. XED = +6% ÷ +10% = +0.6 — positive, so the goods are substitutes, and mildly so. Complements: the price of petrol rises 10% and the quantity of large SUVs demanded falls 4%. XED = −4% ÷ +10% = −0.4 — negative, so the goods are complements. Notice what each number adds beyond the sign: +0.6 says butter and margarine are fairly weak substitutes, while a supermarket own-brand cola would show a much larger positive XED against a rival cola. State the formula, substitute, then read the sign AND the size — the size is the mark students leave behind.
ModelSupply — the mirror image
Supply is the quantity firms are willing and able to sell at each price in a given period, and its curve slopes upward: higher prices make production more profitable and cover the rising marginal cost of extra output. The same shift-versus-movement discipline applies. A change in the good's own price moves you along the supply curve — a change in quantity supplied. Anything else shifts the curve.
The conditions of supply are the costs of production (wages, raw materials, energy — the feed-and-energy spike that hit egg producers), technology, indirect taxes and subsidies, the number of firms in the market, the prices of other goods the firm could produce instead, and, for farmed and mined goods, weather and disease. Government levers sit here too: an indirect tax raises costs and shifts supply left (and up by the size of the tax), while a subsidy shifts it right. When you analyse any market, run a two-column scan — what could shift demand, what could shift supply — because most AQA data questions are engineered so that one blade of the scissors moves and you must trace it through to price and quantity.
ModelPrice elasticity of supply
Price elasticity of supply (PES) = %ΔQs ÷ %ΔP measures how sharply producers can expand output when price rises. It is almost always positive, because supply slopes up. Supply is elastic (PES above 1) when firms can respond fast, and inelastic (below 1) when they cannot.
What makes supply responsive: spare capacity (idle machines and workers that can be switched on cheaply), the level of stocks that can be released, the mobility of factors of production (how easily labour and capital shift into this good), and above all time. In the immediate market period supply is often near-fixed (you cannot conjure hens overnight — which is exactly why the egg shortage bit so hard and lasted months); in the long run, firms build capacity and PES rises. Agriculture and mining are textbook inelastic-supply cases; a firm with a warehouse of unsold stock and idle staff is the elastic case.
A furniture maker running below capacity raises its price from £8 to £10 a unit and finds it can lift output from 1,000 to 1,300 units a week using idle machines and staff overtime. Work it through: the price change is (10 − 8) ÷ 8 = 25%; the quantity change is (1,300 − 1,000) ÷ 1,000 = 30%. PES = 30% ÷ 25% = 1.2 — elastic, because the spare capacity let supply outpace the price rise. Now imagine the same 25% price rise hitting an egg producer mid-cull with no spare hens: output barely moves, say +5%, giving PES = 5 ÷ 25 = 0.2, highly inelastic. Identical price signal, opposite supply response — and the difference is entirely spare capacity and time.
MechanismEquilibrium and the price mechanism
Equilibrium is the price where quantity demanded equals quantity supplied — the market clears, with no shortage and no glut. Away from it, price does the correcting. Below equilibrium there is excess demand (a shortage): buyers compete, bidding price up, which chokes off some demand and coaxes out more supply until the gap closes. Above equilibrium there is excess supply (a glut): unsold stock forces price down until the market clears. When a curve shifts, the market moves to a new equilibrium, and reading off the new price and quantity is the core skill.
Behind this is what AQA calls the functions of the price mechanism, and you should name all three. The signalling function: prices transmit information — rising egg prices signalled scarcity to buyers and opportunity to producers. The incentive function: higher prices reward suppliers for expanding and reward buyers for economising. The rationing function: when a good is scarce, a higher price allocates it to those willing and able to pay, which is what the supermarket egg rationing was crudely standing in for. This trio — signal, incentive, ration — is the heart of how markets allocate resources, and it is the setup for every later argument about market failure, where the mechanism misfires.
CaseThe interrelationship between markets
Markets are not islands; a shock in one ripples into others, and AQA gives these links precise names. Derived demand: demand for a factor or input that comes from demand for the final good — the demand for lithium and cobalt is derived from the demand for electric-vehicle batteries, and the demand for construction workers is derived from demand for new homes. Joint (complementary) demand: goods bought together, so a price fall in one lifts demand for the other — games consoles and games, cars and petrol, printers and ink. Competitive demand: substitutes, where a price change in one shifts demand for the rival — the butter-and-margarine story from the XED block.
On the supply side, joint supply means producing one good automatically produces another: refining crude oil yields petrol and bitumen together, and raising beef cattle yields hides for leather — so a beef shortage pushes leather prices up too. Composite demand is where a good is demanded for several competing uses, so more going to one use leaves less for another: land demanded for both housing and farming, or milk for cheese, butter and drinking. The exam move is to spot the link and trace the shift the whole way through — an avian-flu cull cuts egg supply, but because hens are also a meat source and feed is a shared input, the shock spreads across connected markets rather than staying neatly in one.
VocabularyKey terms the mark scheme pays for
TrapsMisconceptions that cost marks
ExamWhat examiners want
This is the most diagram-dependent section on Theme 1, and AQA marks the diagram AND its use. Draw big, label both axes, letter your points, and — the step candidates skip — write a sentence saying what the shift does to price and quantity. Never let a correct diagram sit unexplained in the answer. On the shift-versus-movement trap, discipline your language: 'own price' changes quantity demanded or supplied; everything else changes demand or supply.
For the quantitative leaves, always quote the number and then interpret it. 'Supply is inelastic' is half an answer; 'PES ≈ 0.2, highly inelastic because egg producers had no spare hens and hens take months to rear' is the full one. In every calculation state the formula, substitute the figures, and add a sentence of meaning — the interpretation mark is the one most often dropped. On data-response and 25-markers, the strongest analysis traces a shock through the price mechanism's three functions and then evaluates using elasticity: the size of a price change depends on how elastic the other curve is, so a supply shock hits price hardest exactly when demand is inelastic — the reason a run-of-the-mill egg shortage produced empty shelves and rationing rather than a small, quiet price nudge.