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

This guide covers two content areas inside External influences in the OCR Advanced GCE in Business (H431) Specification, Version 2.1 (January 2026): the market, market size and growth (2.1 on this site) and demand and supply (2.2 on this site). The specification does not number its own areas, so the numbers are ours. It is written for the specification’s final assessment in summer 2027. For the wider topic, see the external influences study guide, the revision notes and the practice questions. Course hub: OCR A Level Business. Checklist: printable checklist. To find weak spots first, try the free diagnostics.

What the specification asks you to do

Content	What you must be able to do
The market	Explain what is meant by a market and by competition
Market size and growth	Explain market size and market growth; explain why market size matters to a business
Market share	Evaluate how a business could increase its market share
Market structure	Describe the key features of monopoly, oligopoly and monopolistic competition; analyse how market structure affects decision making power
Demand, supply, equilibrium	Explain each term and how demand and supply interact to set equilibrium
Determinants	Explain the determinants of demand and supply and how changes in them affect price and output decisions; evaluate the factors affecting demand and supply
Diagrams	Construct and interpret diagrams for changes in determinants, and for excesses and shortages
Excess and shortage	Evaluate the effect of excesses and shortages in a market

The market and competition

A market is any setting, physical or online, where buyers and sellers meet to trade a good or service. Examples include a street market, a shopping centre or a website. The product defines it: the market for school uniforms is not the market for sofas.

Competition is rivalry between businesses selling similar products to win the same customers. Rivals compete on price, quality, design, service, convenience and promotion. Intensity depends on the number of rivals, the similarity of their offers and the ease with which newcomers can join.

Market size and market growth

Market size is the total sales of all businesses in a market over a period. It is measured two ways:

• by value: total sales revenue, in pounds
• by volume: total units sold, such as loaves, tickets or subscriptions

Value and volume can move differently. If prices rise 5% and units sold fall 2%, value rises while volume falls. Say which measure you use.

Market growth is the change in market size over time, usually a percentage:

market growth (%) = the rise or fall in market size ÷ the starting market size × 100, with the change found as new size minus starting size

Market share is a business’s sales as a percentage of market size. This is the standard form:

market share (%) = business sales ÷ total market sales × 100

Why market size matters to a business

• It shows the potential sales revenue. A business in a market worth £4.8m a year cannot sell £6m of the same product locally.
• It affects investment decisions. A large market can justify new premises or machinery and may let the firm gain economies of scale. A tiny market may not.
• It shows attractiveness to rivals. A big, growing market invites new entrants, which affects future market share.
• It gives context to the firm’s own sales. A business whose sales rise 6% in a market growing 10% is losing ground, even though its revenue grew.
• It signals saturation. A large market that has stopped growing offers little room without taking customers from rivals.

Worked example: market share

Oakfell Bakehouse sells artisan bread in a town. Total market sales were £4.8m last year and £5.28m this year. Oakfell’s sales were £0.60m, then £0.77m.

1. Market growth = (5.28 − 4.8) ÷ 4.8 × 100 = 10%.
2. Share last year = 0.60 ÷ 4.8 × 100 = 12.5%.
3. Share this year = 0.77 ÷ 5.28 × 100 = 14.6% (1 decimal place).
4. Oakfell’s own sales growth = (0.77 − 0.60) ÷ 0.60 × 100 = 28.3%, well above the market’s 10%, so its share rose by about 2.1 percentage points.

To reach a 15% share of this year’s market, sales would have needed to be 0.15 × £5.28m = £0.792m.

Increasing market share: how to evaluate

The specification asks you to evaluate how a business could raise its share. Options include:

Approach	Strength	Limitation
Lower prices	Quick; attracts price-sensitive buyers	Rivals can copy; margins fall
Product development or differentiation	Harder to copy; supports higher prices	Costly; no guarantee customers value it
Promotion	Raises awareness fast	Spending may not convert to sales
Wider distribution (more outlets, online)	Reaches new customers	Needs investment and stock
Acquiring or merging with a rival	Immediate share gain	Expensive; integration is hard
Organic growth (building sales from the firm’s own resources)	Controlled risk	Slow

A judgement depends on the market. Where products are alike and customers compare prices, cuts work fast but trigger retaliation. Where buyers value quality or brand, differentiation is stronger. Also consider the firm’s finances: a firm with thin cash cannot fund a long promotion campaign.

Market structures

The specification names three structures. Compare them on four features.

Feature	Monopoly	Oligopoly	Monopolistic competition
Number of firms	One dominant seller	A few large firms hold most of the market	Many small firms
Barriers to entry	High	Often high	Low
Product	No close substitute	Branded, often similar	Differentiated
Interdependence	None to react to	High: each firm watches rivals	Low

A monopoly is a market with a single dominant seller. The oligopoly is shaped by interdependence: if one firm cuts price, rivals may follow, so firms often compete through branding and service. Monopolistic competition has many sellers, each offering something slightly different, such as local cafes or hairdressers.

Market structure and decision making power

Decision making power means how freely a business can set price, output and strategy.

• Monopoly: the greatest power over price, since customers have few alternatives. It is still limited by customers’ willingness to pay, by possible entry and by any regulation.
• Oligopoly: considerable power, but choices depend on likely rivals’ reactions. Firms may avoid price cuts and compete by advertising.
• Monopolistic competition: limited power. Differentiation allows a small premium, but close substitutes keep prices near rivals’.

Analysis should link the structure to the business: high barriers protect profit, low barriers invite competition.

Demand, supply and equilibrium

Demand is the amount of a product that consumers are ready and able to buy at every price during a set period. Supply is the amount that producers are ready and able to sell at every price during that period. Equilibrium is the price where the amount buyers want matches the amount sellers offer, so the market clears. The market is at equilibrium price and equilibrium quantity.

The demand curve slopes downward: a higher price reduces quantity demanded. The supply curve slopes upward: a higher price makes production more profitable, so more is offered.

Determinants of demand and supply

The specification asks for the determinants without listing them, so this is the standard list.

Demand (a change shifts the whole curve):

• consumer income
• prices of substitutes and complements
• tastes, fashion and trends
• advertising and promotion
• population size and make-up
• expectations of future prices
• seasons and weather

Supply:

• costs of production (wages, raw materials, energy)
• technology
• number of firms in the market
• taxes and subsidies
• weather, for agricultural goods
• expectations of future profit

A change in the product’s own price causes a movement along a curve. A change in any other determinant causes a shift of the whole curve.

Worked example: constructing the diagram

The weekly market for cycle helmets in a city has these functions, where P is price in pounds and quantities are helmets per week:

Demand: QD = 900 − 30P. Supply: QS = 20P − 100.

Price (£)	Quantity demanded	Quantity supplied	Result
14	480	180	shortage of 300
17	390	240	shortage of 150
20	300	300	equilibrium
24	180	380	excess supply of 200
26	120	420	excess supply of 300

Set QD = QS: 900 − 30P = 20P − 100, so 1,000 = 50P, giving P = £20 and Q = 300 helmets. Price goes on the upright axis and quantity along the bottom. One line falls (demand), the other climbs (supply), and they meet at (300, 20). Label axes, both curves and the equilibrium.

Shifts in the curves

Supply shift right. A new moulding machine lowers costs, adding 150 helmets at every price: QS = 20P + 50.

• 900 − 30P = 20P + 50 gives P = £17, Q = 390.
• Supply moves right, price falls from £20 to £17 and quantity rises from 300 to 390.
• Revenue moves from £6,000 to £6,630. For these helmet makers, a lower price still raised revenue.

Demand shift left. Suppose instead a news story turns riders against the helmets, reducing demand by 120 at every price: QD = 780 − 30P, with the original supply.

• 780 − 30P = 20P − 100 gives P = £17.60, Q = 252.
• Demand moves left, so both price and quantity fall.

Name the curve that moves, its direction and the cause. Then read off the new equilibrium and compare it with the old.

Price and output decisions

Changes in the determinants affect what businesses decide. When demand rises, price rises, and firms may increase output, hire staff or order stock. When demand falls, they may cut price, reduce output or find new markets. When supply rises because costs fall, the firm may cut prices to gain share or keep prices and enjoy higher margin. When costs rise, it must absorb the increase or raise price, depending on market power.

Evaluating the factors affecting demand and supply

Do not just list. Judge which determinant matters most in the case. For a luxury product, income and tastes may dominate. For a farm product, weather may. Consider how large the change is, how long it lasts, whether the business can control or predict it, and whether competitors face the same change.

Excesses and shortages

At any price above equilibrium, quantity supplied exceeds quantity demanded: excess supply (also called a surplus). At any price below equilibrium, quantity demanded exceeds quantity supplied: excess demand, or shortage. On the helmet diagram at £24 the gap between the curves is 200 helmets, and at £14 it is 300.

Effects of excess supply: unsold stock, storage costs, pressure to cut prices, falling margins, wasted output if the product is perishable, and cutbacks in production. Effects of shortage: lost sales, upward pressure on price, higher margins for sellers who have stock, frustrated customers who may switch, and an incentive for new entrants.

Evaluation points: markets can adjust quickly or slowly, so the effect depends on how long the imbalance lasts, whether stock can be stored, and whether the price can change freely. A short shortage may make a brand look popular. A long one risks losing loyal customers.

Common errors

• Writing “demand has risen” when only the price fell. That is a movement along the curve.
• Shifting both curves when the case describes only one change.
• Treating market share as sales. Share is a percentage of the whole market.
• Calling a large firm a monopoly. Monopoly is about the number of sellers and the lack of close substitutes.
• Describing a diagram without stating the new price and quantity.
• Ending an evaluation without a judgement tied to the case.

Frequently asked questions

What is the difference between market size by value and by volume? Market size by value is total sales revenue in pounds, while by volume it is total units sold. They can move differently, for example value can rise while volume falls if prices go up.

What is excess supply? Excess supply happens when the price is above equilibrium, so quantity supplied is greater than quantity demanded. It leads to unsold stock, storage costs and pressure to cut prices.

What makes an oligopoly different from other market structures? An oligopoly is dominated by a few large firms that are interdependent, so if one firm cuts its price, rivals may follow. This is why firms in an oligopoly often compete through branding and service rather than 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.