Unit 2 · The Price System and the Microeconomy (AS & A Level)
The Complete Cambridge International AS & A Level Economics (9708) Guide · Cambridge International AS & A Level Economics (9708)Unit 2 · The Price System and the Microeconomy (AS & A Level)
- The Complete Cambridge International AS & A Level Economics (9708) Guide
- Cambridge International AS & A Level Economics (9708)
- 6 sections
Cambridge International does not publish a per-unit weighting for this exam. Exam structure (official): AS Level: AS Level Multiple Choice (60 min, 30 questions, 33%) · AS Level Data Response And Essays (120 min, 67%); A Level: AS Level Multiple Choice (60 min, 30 questions, 17%) · AS Level Data Response And Essays (120 min, 33%) · A Level Multiple Choice (75 min, 30 questions, 17%) · A Level Data Response And Essays (120 min, 33%). Be ready to carry the same unit skills and representations into a complete answer on every paper. The vocabulary spine is effective demand, demand, supply, market equilibrium, disequilibrium, income elasticity of demand, cross elasticity of demand, price elasticity of demand, price elasticity of supply, consumer surplus. Revise them through demand, supply, equilibrium, and elasticity: define the relationship, identify what changes, and keep the comparison needed for the reusable-bottle demand shift during recall.
- How Cambridge International AS & A Level Economics (9708) assesses this Cambridge International publishes no per-unit percentage for Cambridge International A Level Economics; Paper 1 accounts for 33% of the AS Level total and 17% of the A Level total. · AS Level: AS Level Multiple Choice (60 min, 30 questions, 33%) · AS Level Data Response And Essays (120 min, 67%) | A Level: AS Level Multiple Choice (60 min, 30 questions, 17%) · AS Level Data Response And Essays (120 min, 33%) · A Level Multiple Choice (75 min, 30 questions, 17%) · A Level Data Response And Essays (120 min, 33%) · show the model with Quantity and Price graph, D1, D2, S labels, Quantity is horizontal and Price is vertical., Output and Cost and revenue graph, AR = demand, MR, MC labels, Output is horizontal and Cost and revenue is vertical.
- Key skills Demand and Supply Curves: Determinants, Shifts and Movements, Price, Income and Cross Elasticity of Demand, Price Elasticity of Supply, The Interaction of Demand and Supply: Equilibrium and the Functions of Price, Consumer and Producer Surplus, Utility: Marginal Utility and the Equi-Marginal Principle (A Level), Indifference Curves and Budget Lines (A Level), Efficiency and Market Failure (A Level), Private and Social Costs and Benefits and Externalities (A Level), Costs, Revenue and Profit: Short-Run and Long-Run Production (A Level), Market Structures: Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly (A Level), Growth and Survival of Firms (A Level), Differing Objectives and Policies of Firms: Profit Maximisation, Price Discrimination and Pricing Policies (A Level)
- How to study for Unit 2 This page turns Quantity and Price graph, D1, D2, S labels, Quantity is horizontal and Price is vertical., Output and Cost and revenue graph, AR = demand, MR, MC labels, Output is horizontal and Cost and revenue is vertical. into one route: For the bottle market, set P=100−Q equal to P=Q to obtain Q=50 and P=50..
- The organizing decision The reusable-bottle model separates a demand shift from movement along supply.
- What A Level adds The publisher diagram combines AR=demand, MR, and MC on Output and Cost and revenue axes. Topics: Utility: Marginal Utility and the Equi-Marginal Principle; Indifference Curves and Budget Lines; Efficiency and Market Failure; Private and Social Costs and Benefits and Externalities; Costs, Revenue and Profit: Short-Run and Long-Run Production; Market Structures: Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly; Growth and Survival of Firms; Differing Objectives and Policies of Firms: Profit Maximisation, Price Discrimination and Pricing Policies.
What Cambridge International AS & A Level Economics (9708) Unit 2 covers
Use this map to connect each assessed skill to the relationship or representation that makes it visible.
Demand and Supply Curves: Determinants, Shifts and Movements
effective demand; demand; supply02Price, Income and Cross Elasticity of Demand
effective demand; demand; supply03Price Elasticity of Supply
effective demand; demand; supply04The Interaction of Demand and Supply: Equilibrium and the Functions of Price
effective demand; demand; supply05Consumer and Producer Surplus
effective demand; demand; supply06Utility: Marginal Utility and the Equi-Marginal Principle (A Level)
marginal utility; allocative efficiency; productive efficiency07Indifference Curves and Budget Lines (A Level)
marginal utility; allocative efficiency; productive efficiency08Efficiency and Market Failure (A Level)
marginal utility; allocative efficiency; productive efficiency09Private and Social Costs and Benefits and Externalities (A Level)
marginal utility; allocative efficiency; productive efficiency10Costs, Revenue and Profit: Short-Run and Long-Run Production (A Level)
marginal utility; allocative efficiency; productive efficiency11Market Structures: Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly (A Level)
marginal utility; allocative efficiency; productive efficiency12Growth and Survival of Firms (A Level)
marginal utility; allocative efficiency; productive efficiency13Differing Objectives and Policies of Firms: Profit Maximisation, Price Discrimination and Pricing Policies (A Level)
marginal utility; allocative efficiency; productive efficiencyCambridge International does not publish a per-unit weighting for this exam.
Official unit name and weighting: Cambridge International syllabus.
The Price System and the Microeconomy
Connect the published share to the unit model
The vocabulary spine is effective demand, demand, supply, market equilibrium, disequilibrium, income elasticity of demand, cross elasticity of demand, price elasticity of demand, price elasticity of supply, consumer surplus. Revise them through demand, supply, equilibrium, and elasticity: define the relationship, identify what changes, and keep the comparison needed for the reusable-bottle demand shift during recall.
The reusable-bottle model separates a demand shift from movement along supply. D1 meets S at E1, while stronger preferences move demand to D2 and create E2.
The decision that organizes this unit
Define the system and choose the route before calculating
The reusable-bottle model separates a demand shift from movement along supply.
For the bottle market, set P=100−Q equal to P=Q to obtain Q=50 and P=50.
Mechanism route and repair branches
Relationships to preserve
- Treat the bottle example as two simultaneous-equation equilibria: E1 is (50, 50) and E2 is (60, 60).
- Elasticity questions require a percentage numerator and the correct percentage denominator.
- Consumer and producer surplus are tied to the market curves and equilibrium price.
- The publisher’s decision uses two stages: equate MR and MC for output, then use the demand curve for price.
- Profit, average revenue, average cost, and marginal cost refer to different totals or changes.
- Market-structure evaluation can then compare perfect competition, monopoly, and price discrimination.
Representations to read
- Quantity and Price graph
- D1, D2, S labels
- Quantity is horizontal and Price is vertical.
- Output and Cost and revenue graph
- AR = demand, MR, MC labels
- Output is horizontal and Cost and revenue is vertical.
Branches to reject
- Wanting a bottle is not enough to enter market demand.
- Price and quantity must satisfy demand and supply together.
- A percentage response can lose its denominator.
- MR can be mistaken for the price read from demand.
- A per-unit cost is different from the cost of one more unit.
- Revenue can be reported without subtracting total cost.
| Key concept | Why it's hard | What scores |
|---|---|---|
| effective demand | Wanting a bottle is not enough to enter market demand. | Tie willingness to buy to purchasing power at a stated price. |
| market equilibrium | Price and quantity must satisfy demand and supply together. | Solve the two equations and label their intersection E1 or E2. |
| price elasticity | A percentage response can lose its denominator. | Name whether price, income, or another good’s price caused the quantity change. |
How Cambridge International AS & A Level Economics (9708) assesses The Price System and the Microeconomy (AS & A Level)
What a complete response must make visible
Match the task to evidence that a reader can audit, then check the most likely reasoning failure before finalizing the response.
| Task | Evidence to show | Hurdle |
|---|---|---|
| Demand and Supply Curves: Determinants, Shifts and Movements | effective demand; demand; supply | Wanting a bottle is not enough to enter market demand. |
| Price, Income and Cross Elasticity of Demand | effective demand; demand; supply | Price and quantity must satisfy demand and supply together. |
| Price Elasticity of Supply | effective demand; demand; supply | A percentage response can lose its denominator. |
| The Interaction of Demand and Supply: Equilibrium and the Functions of Price | effective demand; demand; supply | MR can be mistaken for the price read from demand. |
| Consumer and Producer Surplus | effective demand; demand; supply | A per-unit cost is different from the cost of one more unit. |
| Utility: Marginal Utility and the Equi-Marginal Principle (A Level) | marginal utility; allocative efficiency; productive efficiency | Revenue can be reported without subtracting total cost. |
| Indifference Curves and Budget Lines (A Level) | marginal utility; allocative efficiency; productive efficiency | Wanting a bottle is not enough to enter market demand. |
| Efficiency and Market Failure (A Level) | marginal utility; allocative efficiency; productive efficiency | Price and quantity must satisfy demand and supply together. |
| Private and Social Costs and Benefits and Externalities (A Level) | marginal utility; allocative efficiency; productive efficiency | A percentage response can lose its denominator. |
| Costs, Revenue and Profit: Short-Run and Long-Run Production (A Level) | marginal utility; allocative efficiency; productive efficiency | MR can be mistaken for the price read from demand. |
| Market Structures: Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly (A Level) | marginal utility; allocative efficiency; productive efficiency | A per-unit cost is different from the cost of one more unit. |
| Growth and Survival of Firms (A Level) | marginal utility; allocative efficiency; productive efficiency | Revenue can be reported without subtracting total cost. |
| Differing Objectives and Policies of Firms: Profit Maximisation, Price Discrimination and Pricing Policies (A Level) | marginal utility; allocative efficiency; productive efficiency | Wanting a bottle is not enough to enter market demand. |
AS markets and elasticity: draw and solve the model
Read each question as it appears on the exam paper, choose your answer, then tap it to see the feedback.
Practice 1: Preferences and a demand shift
A town market for reusable bottles experiences stronger low-waste preferences.
Demand begins at P = 100 − Q and supply is P = Q. Stronger preferences increase quantity demanded by 20 thousand bottles at every price, so demand becomes P = 120 − Q. (a) Calculate both equilibria. (b) Explain the change in equilibrium price and quantity. (c) Show the change on a labeled diagram.
Show your working and distinguish a shift from movement along a curve.
A. Shift demand right from D1 to D2, solve 120 − Q = Q, and obtain Q = 60 and P = 60.
✅ Correct! 😊 Stronger preferences shift the entire demand curve right. Solving the new demand equation against unchanged supply gives the correct equilibrium.
B. Move down D1 because a lower price raises quantity demanded, ending at Q = 60 and P = 40.
❌ Not quite 😭 The initiating cause is preferences, not price. Movement along D1 therefore misidentifies the mechanism and does not satisfy the unchanged supply equation.
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C. Shift supply right to P = Q − 20 because more bottles are purchased.
❌ Not quite 😭 Higher purchases are an outcome, not evidence of a supply determinant changing. The scenario explicitly changes demand through preferences.
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D. Use P = 80 − Q for demand and obtain Q = 40 and P = 40.
❌ Not quite 😭 Reducing the demand intercept represents weaker demand. Stronger preferences increase quantity demanded at each price, raising the intercept to 120.
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Full explanation
- Step 1Initial equilibrium comes from 100 − Q = Q, so Q = 50 and P = 50.
- Step 2Stronger low-waste preferences are a non-price determinant, shifting demand right to P = 120 − Q.
- Step 3Set D2 equal to unchanged supply: 120 − Q = Q, so Q = 60 and P = 60.
- Step 4Label Price, Quantity, D1, D2, S, E1 and E2, with the demand shift shown rightward.
Practice 2: Selecting the correct elasticity
The price of coffee rises by 10%, causing quantity demanded for tea to rise by 5%.
What is the cross elasticity of demand for tea with respect to the price of coffee, and what does its sign suggest?
Choose one answer.
A. +0.5; tea and coffee are substitutes
✅ Correct! 😊 Correct. Cross elasticity is 5% ÷ 10% = +0.5, and the positive sign indicates that demand for tea rises when coffee’s price rises.
B. −0.5; tea and coffee are complements
❌ Not quite 😭 The quantity change is positive, not negative. The direction given therefore supports a substitute relationship rather than a complementary one.
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C. +2.0; tea and coffee are substitutes
❌ Not quite 😭 The interpretation is plausible but the ratio is inverted. Quantity demanded of tea is the numerator and coffee’s price change is the denominator.
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D. +0.5; tea is a normal good
❌ Not quite 😭 The coefficient is correct, but normal-good status is inferred from income elasticity. This question changes the price of a related good.
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Full explanation
- Step 1The changed cause is the price of coffee, while the response is quantity demanded for tea, so use cross elasticity of demand.
- Step 2Calculate percentage change in tea demand ÷ percentage change in coffee price: 5% ÷ 10% = +0.5.
- Step 3A positive cross elasticity indicates the two goods are substitutes.
Key terms for Unit 2: The Price System and the Microeconomy (AS & A Level)
Models, uses, and boundaries
- PED
- PED divides the percentage change in quantity demanded by the percentage change in price. PED divides the percentage change in quantity demanded by the percentage change in price. Its sign and absolute size describe the demand response.
- YED uses the percentage change in income as its denominator
- YED uses the percentage change in income as its denominator. YED uses the percentage change in income as its denominator. The sign distinguishes normal from inferior-good responses in the stated case.
- XED
- XED compares the percentage change in demand for good A with the percentage price change of good B. XED compares the percentage change in demand for good A with the percentage price change of good B. The two goods must not be interchanged.
- PES
- PES measures the percentage quantity-supplied response to a percentage price change. PES measures the percentage quantity-supplied response to a percentage price change. Both percentages must cover the same market adjustment.
- Profit
- Profit subtracts total cost from total revenue at the chosen output. Profit subtracts total cost from total revenue at the chosen output. Revenue and cost must cover the same production period.
- Average revenue
- Average revenue divides total revenue by output. Average revenue divides total revenue by output. In the publisher model, the AR curve is also the demand curve used to read price.
- Average cost
- Average cost divides total cost by output. Average cost divides total cost by output. It is a per-unit total, not the extra cost of the final unit.
- Marginal cost
- Marginal cost divides the change in total cost by the change in output. Marginal cost divides the change in total cost by the change in output. The Δ symbols distinguish it from average cost.
Cambridge International AS & A Level Economics (9708) Unit 2 FAQ
How much of Cambridge International AS & A Level Economics (9708) does Unit 2 carry?
Cambridge International does not publish a per-unit weighting for this exam.
What is the first move on a The Price System and the Microeconomy (AS & A Level) problem?
For the bottle market, set P=100−Q equal to P=Q to obtain Q=50 and P=50.
Which relationships should I preserve?
Treat the bottle example as two simultaneous-equation equilibria: E1 is (50, 50) and E2 is (60, 60). Elasticity questions require a percentage numerator and the correct percentage denominator. Consumer and producer surplus are tied to the market curves and equilibrium price. The publisher’s decision uses two stages: equate MR and MC for output, then use the demand curve for price. Profit, average revenue, average cost, and marginal cost refer to different totals or changes. Market-structure evaluation can then compare perfect competition, monopoly, and price discrimination.
Which representations should I practice?
Practice moving among Quantity and Price graph, D1, D2, S labels, Quantity is horizontal and Price is vertical., Output and Cost and revenue graph, AR = demand, MR, MC labels, Output is horizontal and Cost and revenue is vertical..
What error should I check before submitting an answer?
Check for Wanting a bottle is not enough to enter market demand.; Price and quantity must satisfy demand and supply together.; A percentage response can lose its denominator.; MR can be mistaken for the price read from demand.; A per-unit cost is different from the cost of one more unit.; Revenue can be reported without subtracting total cost..
Evidence workshop
Continue from the free model into complete practice
The full unit guide continues with the chapter’s worked examples, figures, scoring tables, and answer checks.
- AS markets and elasticity: connect direction and magnitude
- AS markets and elasticity: draw and solve the model
- AS markets and elasticity: build the argument
- The Price System and the Microeconomy: connect the model
Full unit practice. Open the complete guide for the full evidence workshop and synthesis.
Related Cambridge International AS & A Level Economics (9708) unit guides
Cambridge International AS & A Level Economics (9708) Exam Guide & Review
The whole exam and its official unit sequence.01Basic Economic Ideas and Resource Allocation
Cambridge International does not publish a per-unit weighting for this exam.03Government Microeconomic Intervention (AS & A Level)
Cambridge International does not publish a per-unit weighting for this exam.04The Macroeconomy (AS & A Level)
Cambridge International does not publish a per-unit weighting for this exam.05Government Macroeconomic Intervention (AS & A Level)
Cambridge International does not publish a per-unit weighting for this exam.06International Economic Issues (AS & A Level)
Cambridge International does not publish a per-unit weighting for this exam.How to study Cambridge International AS & A Level Economics (9708) Unit 2
Start with the organizing decision
Before solving, restate the decision in operational terms: The reusable-bottle model separates a demand shift from movement along supply.. Your first written move should be to For the bottle market, set P=100−Q equal to P=Q to obtain Q=50 and P=50..
Practice the same idea in several representations
Rotate through Quantity and Price graph, D1, D2, S labels, Quantity is horizontal and Price is vertical., Output and Cost and revenue graph, AR = demand, MR, MC labels, Output is horizontal and Cost and revenue is vertical.. Use each representation to practice Demand and Supply Curves: Determinants, Shifts and Movements, Price, Income and Cross Elasticity of Demand, Price Elasticity of Supply, The Interaction of Demand and Supply: Equilibrium and the Functions of Price, Consumer and Producer Surplus, Utility: Marginal Utility and the Equi-Marginal Principle (A Level), Indifference Curves and Budget Lines (A Level), Efficiency and Market Failure (A Level), Private and Social Costs and Benefits and Externalities (A Level), Costs, Revenue and Profit: Short-Run and Long-Run Production (A Level), Market Structures: Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly (A Level), Growth and Survival of Firms (A Level), Differing Objectives and Policies of Firms: Profit Maximisation, Price Discrimination and Pricing Policies (A Level), and explain what stays invariant when the surface form changes.
Turn each error into a repair check
After every attempt, audit the response for Wanting a bottle is not enough to enter market demand.; Price and quantity must satisfy demand and supply together.; A percentage response can lose its denominator.; MR can be mistaken for the price read from demand.; A per-unit cost is different from the cost of one more unit.; Revenue can be reported without subtracting total cost.. Then redo only the first step that made the reasoning diverge, keeping units, direction, and model conditions visible.
Confirm current course details in the official Cambridge International syllabus for the 2026-2028 administration.
Where to go next
Return to the Cambridge International AS & A Level Economics (9708) to see every unit and plan your revision.