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Topic 2: Microeconomics

4 dot points, in syllabus order. Each dot point has a focused answer, with exam-style questions and worked answers where available.

How responsive are buyers and sellers to price changes?

Define and calculate price elasticity of demand and supply and explain the factors affecting them.

Elasticity measures how responsive quantity demanded or supplied is to a change in price. It is calculated as the percentage change in quantity divided by the percentage change in price, and it shapes pricing and tax outcomes.

8 min read →

How does competition shape firm behaviour?

Compare market structures from perfect competition to monopoly and explain their effects on price, output and efficiency.

Market structures range from perfect competition through monopolistic competition and oligopoly to monopoly. The number of firms, barriers to entry and product differentiation determine pricing power, output and efficiency.

7 min read →

When and why do markets fail to allocate resources well?

Explain the main types of market failure and evaluate government policies used to correct them.

Market failure occurs when free markets allocate resources inefficiently, through externalities, public goods, asymmetric information and market power. Governments intervene with taxes, subsidies, regulation and direct provision.

8 min read →

How do the decisions of buyers and sellers set prices in a market?

Use demand and supply to explain how market equilibrium is determined and how it changes.

How demand and supply curves interact to set the equilibrium price and quantity, and how shifts in either curve change the market outcome.

8 min read →