OCR A Level Business: The market, market size and growth and Demand and supply (H431) – Revision Notes

Quick recall for the market, market size and growth and demand and supply in the External influences area of the OCR Advanced GCE in Business (H431) Specification, Version 2.1 (January 2026). Full explanations and worked diagrams are in the study guide. Test yourself with the practice questions. Wider topic notes: external influences revision notes. Course hub: OCR A Level Business. Checklist: printable checklist. Not sure where to start? Take a free diagnostic.

Definitions to know

Term	Short definition
Market	A setting, physical or online, where buyers and sellers meet to trade
Competition	Rivalry between businesses for the same customers
Market size	Total sales of all firms in the market over a period, by value (£) or volume (units)
Market growth	The change in market size over time, usually as a percentage
Market share	The portion of the whole market that one firm’s sales represent, as a percentage
Demand	Amount consumers are ready and able to buy at every price during a set period
Supply	Amount producers are ready and able to sell at every price during a set period
Equilibrium	The price where buyers’ wishes match sellers’ offers
Excess supply	Quantity supplied is greater than quantity demanded at the price (a surplus)
Excess demand	Buyers want more than sellers offer at that price (a shortage)

Formulas (standard forms)

The specification does not print formulas for this area, so these are the standard forms.

Measure	Formula
Market growth (%)	(new size − old size) ÷ old size × 100
Market share (%)	firm sales ÷ total market sales × 100
Sales growth (%)	(new sales − old sales) ÷ old sales × 100

Method in steps:

1. Check whether the data are by value or by volume, and use one measure throughout.
2. Subtract old from new before dividing by old.
3. Give a unit or a percentage sign and round sensibly.
4. Comment: a firm whose sales grow more slowly than the market is losing share.

Why market size matters

• Shows the ceiling on potential sales revenue.
• Guides investment decisions and the chance of economies of scale.
• Tells you how attractive the market is to new entrants.
• Gives context for the firm’s own share and growth.
• A big, static market suggests saturation: gains must come from rivals.

Raising market share: evaluation prompts

Route	For	Against
Price cuts	Fast	Copied; lower margins
Differentiation or new products	Hard to copy	Costly; uncertain
Promotion	Awareness	May not convert
Distribution (including online)	New customers	Needs investment
Acquisition or merger	Instant share	Expensive; integration risk
Organic growth	Lower risk	Slow

Judge by: how alike products are, how price-sensitive buyers are, the firm’s cash, how rivals may respond, and the time available.

Market structures at a glance

	Monopoly	Oligopoly	Monopolistic competition
Sellers	One dominant	Few large	Many small
Barriers to entry	High	Often high	Low
Products	No close substitute	Branded, similar	Differentiated
Rivals’ reactions	Not a worry	Central: interdependence	Minor
Decision making power	Greatest	Considerable but constrained	Limited

Must-know distinction: dominant is not the same as large. Power comes from few substitutes and high barriers, not from size alone.

Demand and supply essentials

• Demand slopes downward; supply slopes upward.
• Own-price change: movement along the curve.
• Any other determinant: shift of the whole curve.
• Rightward shift means more at every price; leftward means less.

Curve	Determinants (standard list)
Demand	income; prices of substitutes and complements; tastes and trends; advertising; population; expectations; seasons
Supply	costs of production; technology; number of firms; taxes and subsidies; weather; expectations

Effects of a shift (one curve, other fixed):

Change	Price	Quantity
Demand shifts right	up	up
Demand shifts left	down	down
Supply shifts right	down	up
Supply shifts left	up	down

Diagram method in steps:

1. Draw axes: price (vertical), quantity (horizontal).
2. Sketch the starting curves and mark the equilibrium.
3. Move one curve and label it new.
4. Mark the new equilibrium and read price and quantity.
5. Write one sentence on what changed, why, and what the business might do.

Excess and shortage

	Excess supply	Shortage
Price vs equilibrium	Above	Below
Typical effects	Unsold stock, storage cost, price cuts, falling margin, waste if perishable, output cuts	Lost sales, price rises, higher margin for sellers with stock, frustrated customers, new entrants attracted
Evaluate by	How long it lasts, perishability, ability to change price	Whether customers wait or switch, how fast supply can respond

Price and output decisions

• Demand up: firms can raise price, increase output, take on staff or stock.
• Demand down: firms cut price, reduce output, cut promotions or seek new markets.
• Costs down (supply right): lower prices to build share or keep prices for margin.
• Costs up (supply left): absorb the cost or pass it on, depending on market power.

Worked reminder

Demand QD = 600 − 20P, supply QS = 40P − 120. Equilibrium: 600 − 20P = 40P − 120, so 720 = 60P, P = £12 and Q = 360. At £16 QD = 280 and QS = 520, an excess supply of 240.

Competition: points to recall

• Competition is rivalry for customers; it can be on price or on non-price factors such as quality, design, service and promotion.
• Strong competition tends to push prices down, raise the cost of winning customers and shrink margins.
• Weak competition, usually from high barriers or few rivals, gives a business more freedom on price and output.
• The number of rivals, how similar their products are and how easily new firms enter all affect how intense it feels.

Analysis chains to practise

A good paragraph links a cause to a consequence for the named business, then adds a judgement. Practise these:

• Rising incomes, demand for a premium product shifts right, price and quantity rise, so the seller can raise price or add output, but only if it can obtain extra stock.
• A new rival enters a market with low barriers, so supply shifts right, price falls, so existing firms see lower margins unless they differentiate.
• A subsidy cuts costs, so supply shifts right, so the price falls and output rises, which helps a firm seeking share.
• A fall in the price of a substitute, demand for the firm’s product shifts left, so price and quantity fall; the firm may respond with promotion.
• Fashion moves away from a product, so demand shifts left and stock builds up, which may force discounting.

Evaluation checklist

1. Which determinant is largest in this case?
2. Is the change short-lived or lasting?
3. Can the business predict or control it?
4. Does the firm have the cash and capacity to respond?
5. Do rivals face the same change?
6. What is your reasoned judgement, and what would change it?

Quick self-test

1. Define market share and write its formula.
2. A market grows from 250,000 units to 275,000 units. State the growth rate.
3. A firm sells 30,000 units in the first market above and 30,000 in the second. Calculate its share each time. What does the change show?
4. A market’s value rises from £15m to £18m. Calculate growth.
5. State two features of monopolistic competition.
6. Why might an oligopolist avoid cutting price?
7. Demand is QD = 500 − 20P and supply is QS = 30P − 100. Find the equilibrium price and quantity.
8. In question 7, find the gap at £15.
9. In question 7, find the gap at £9.
10. Explain the effect on price and quantity if supply decreases but demand is unchanged.

Answers

1. The portion of all market sales that one firm makes, as a percentage: firm sales ÷ market sales × 100.
2. (275,000 − 250,000) ÷ 250,000 × 100 = 10%.
3. 30,000 ÷ 250,000 = 12%, then 30,000 ÷ 275,000 = 10.9% (1 decimal place). Its sales did not grow while the market did, so it lost share.
4. (18 − 15) ÷ 15 × 100 = 20%.
5. Any two: many small sellers; low barriers to entry; differentiated products; limited pricing power.
6. Rivals may copy the cut, leaving everyone with lower revenue and no gain in share: this is interdependence.
7. 500 − 20P = 30P − 100, so 600 = 50P: P = £12, Q = 260.
8. At £15: QD = 200, QS = 350, so excess supply of 150.
9. At £9: QD = 320, QS = 170, so shortage of 150.
10. The supply curve shifts left; at the starting price buyers want more than is offered, so price rises and the equilibrium quantity falls. Example: if supply falls by 75 at each price (QS = 30P − 175), P = £13.50 and Q = 230.

Where marks are usually lost

• Using market share and sales as if they were the same measure.
• Using the later figure as the divisor when finding growth.
• Mixing value and volume in one calculation.
• Describing a price change as a shift of demand.
• Unlabelled axes, or curves without labels, or no equilibrium marked.
• Saying “supply increases” without stating the direction of the shift on the diagram.
• Listing market structure features without linking them to decision making power.
• Evaluation that ends with “it depends” and no stated judgement tied to the business.

Frequently asked questions

What is the formula for market share? Market share is a business’s sales divided by total market sales, multiplied by 100. Check whether the data are by value or by volume and use the same measure throughout.

What is the difference between a movement along a demand curve and a shift? A change in the product’s own price causes a movement along the curve. A change in any other determinant, such as income, the price of substitutes or tastes, shifts the whole curve.

What happens to price and quantity when demand shifts right? When demand shifts right with supply unchanged, both equilibrium price and quantity rise. When demand shifts left, both fall.

Is a dominant firm the same as a large firm? No. Market power comes from having few substitutes and high barriers to entry, not from size alone, so a large firm in a competitive market may have little power over price.

Official syllabus

OCR, Advanced GCE in Business (H431) Specification, Version 2.1 (January 2026), External influences: the market, market size and growth, and demand and supply.