How Prices Are Set in a Market — Market Equilibrium & Price Mechanism | IGCSE Economics

Exam Frequency Analysis

Past paper frequency (2018 to 2024)

This topic accounts for approximately 16% of your exam marks.

stable

Very High

Stable16%

Equilibrium price, surplus/shortage, and price mechanism analysis are core Section B content; tested in most Paper 2 sittings.

A market is any arrangement in which buyers can trade with sellers. The trade can be face-to-face (a street stall) or virtual (eBay, Amazon). In every market, the interaction of demand and supply sets the price at which goods change hands and the quantity that gets traded.

Topics 4 and 5 looked at demand and supply on their own. This topic puts them together.

Two opposing pressures meet in any market:

Buyers want the price to be low (and bid less when it is high).
Sellers want the price to be high (and offer more when it is high).

The two sides settle on the price at which the quantity each side wants to trade is equal. That price is the market equilibrium.