OCR GCSE Economics: Markets, specialisation, demand and elasticity (J205) – Revision Notes

Quick recall for sections 2.1 (The role of markets) and 2.2 (Demand) of OCR GCSE (9-1) Economics (J205), Version 2.0 (June 2026). Full explanations are in the study guide; test yourself with the practice questions. See also the course hub, the printable checklist and the diagnostics. Every figure below is invented and illustrative.

Key definitions

Term	Definition
Market	Wherever buyers meet sellers to swap goods, services or resources for payment
Primary sector	Extracts or grows natural resources
Secondary sector	Manufactures and builds
Tertiary sector	Provides services
Good / service	Physical, storable item / intangible activity produced and consumed together
Factor market	Where land, labour, capital and enterprise are bought and sold
Product market	Where completed goods and services change hands
Derived demand	Demand for a factor that depends on demand for what it produces
Specialisation	Focusing a worker, firm, region or country on a narrow set of jobs or products
Demand	How much buyers will purchase, and can afford, at each price over a stated period
Market demand	Every buyer’s quantity added together at each price
Extension / contraction	Movement down / up the curve because the good’s own price changed
Increase / decrease in demand	Shift right / left caused by a non-price factor
PED	Responsiveness of quantity demanded to a change in price
Total revenue	Price × quantity sold

2.1 in short

• Sectors. Primary and secondary make goods; tertiary supplies services. As an economy develops, the tertiary share of jobs usually rises. Check numbers: in an invented Country A, 4.5 million tertiary jobs become 8.4 million: (8.4 − 4.5) ÷ 4.5 = +86.7%.
• Factor and product markets are linked. Households sell labour (factor market) and earn wages; they spend wages in product markets. Firms sell output there and use the receipts to buy factors. Fall in product demand leads to fall in factor demand.
• Specialisation and exchange.

Group	Benefit	Cost or risk
Producers	Higher output, lower unit cost	Dependence on one product; breakdown stops all stages
Workers	Skill, higher productivity and pay	Boredom; narrow skills; unemployment
Regions	Skills, suppliers, jobs gather together	One industry’s decline hits the whole area
Countries	More output and choice via trade	Import dependence; exposure to world prices

Worked reminder. Five potters each make 6 mugs a day alone (30). With separate stages the team makes 42. Output +40%. Daily wages £300: cost per mug £300 ÷ 30 = £10.00 falls to £300 ÷ 42 = £7.14 (−28.6%).

Evaluation pointers. Gains depend on demand staying strong and on workers retraining easily. Diversified regions and countries cope better. Always end with a judgement: usually the gains are larger, provided risk is managed.

2.2: demand

Method: building a market demand schedule

1. List prices in order.
2. Add every individual’s quantity at the same price.
3. Plot price (vertical) against quantity (horizontal) and join the points; label the curve D.

Method: deciding movement or shift

1. Did the good’s own price change? If so, movement along the curve.
2. If something else changed (income, tastes, related prices, population, expectations, advertising, season), the whole curve shifts.
3. State the direction and say increase or decrease in demand.

Cause	Result
Income up, normal good	Shift right
Income up, inferior good	Shift left
Rival substitute dearer	Shift right
Complement dearer	Shift left
Fashion or advert favourable	Shift right
Price expected to rise	Shift right now

Consequences. Shift right with unchanged supply: price pressure upward, higher revenue and perhaps more hiring for producers; consumers pay more or find shortages. Shift left: lower sales, discounts, possible cuts in output and jobs. Movement: price cut raises quantity; whether revenue rises depends on PED.

PED

PED = quantity change (%) ÷ price change (%), where % change = change ÷ original × 100.

PED size	Type	Curve	Price rise: revenue
0	Perfectly inelastic	Vertical	Rises
0 to 1	Inelastic	Steep	Rises
1	Unitary	Between	Roughly unchanged
Over 1	Elastic	Shallow	Falls
Infinity	Perfectly elastic	Horizontal	Falls to zero

Determinants: substitutes, necessity or luxury, share of income, time, habit, narrowness of definition.

Worked reminder. Price £50 to £55 (+10%); quantity 2,000 to 1,700 (−15%). PED = −15 ÷ 10 = −1.5, elastic. Revenue £100,000 to £93,500: it fell, as expected.

Importance. Producers: pricing, forecasting revenue, setting promotions. Consumers: inelastic goods take a larger bite when prices rise. Evaluation: revenue is not profit, PED is an estimate that changes over time, rivals may react, and costs rise with extra output.

Method: calculating PED in steps

1. Price change as a percentage: (new − old) ÷ old × 100.
2. Quantity change as a percentage, found the same way.
3. Divide the quantity result by the price result.
4. Say whether the size is below 1 (inelastic), equal to 1 (unitary) or above 1 (elastic).
5. If the question asks about revenue, calculate price × quantity before and after, and compare.

Do not stop at the number: add the interpretation in words, since a bare figure leaves the meaning unstated.

Must-know distinctions

Pair	Difference
Movement and shift	Own price change versus any other factor
Extension and increase in demand	Extension is a movement down the curve; an increase is a shift right
Individual and market demand	One buyer versus all buyers added together at each price
Factor market and product market	Inputs are traded versus outputs are traded
Slope and elasticity	Slope is steepness; elasticity is a percentage comparison and varies along a straight line
Revenue and profit	Revenue is price × quantity; profit is revenue minus costs

Drawing checklist

• Mark Price on the upright axis and Quantity on the flat one, with a unit or period if given.
• Draw demand as a downward-sloping line labelled D; draw a second line D1 for a shift.
• For an extension or contraction, mark two points on the same curve and show an arrow along it.
• For perfectly inelastic demand, draw a vertical line; for perfectly elastic demand, a horizontal line; for inelastic, a steep curve; for elastic, a shallow curve.
• Use data from the question when it is given: plot the points, then join them.

Evaluation chains to rehearse

• Specialisation: more output per worker leads to lower unit costs and lower prices or higher profit; but a single-product region is exposed to a fall in demand; so the judgement depends on how easily workers retrain and how varied the economy is.
• Rise in demand: more demand leads to higher price or more sales; producers earn more and may expand; but consumers pay more, and supply may not be able to respond quickly.
• Price cut on an elastic good: quantity rises by a larger percentage than price falls, so revenue rises; but extra output costs more to make, so profit may not rise, and rivals may cut prices too.
• Price rise on an inelastic good: quantity falls by a smaller percentage, so revenue rises; but over time buyers may find substitutes, and consumers on low incomes lose most.

Quick self-test

1. Define a market.
2. Which sector does a fishing business belong to, and does it make goods or services?
3. Give one way factor and product markets are interdependent.
4. Give one cost of specialisation for workers.
5. Price of a snack rises from £4 to £5 and demand falls from 800 to 680. Calculate PED.
6. PED = −0.3. Price rises 20%. What happens to quantity demanded?
7. Is the answer to question 5 elastic or inelastic? Does revenue rise or fall?
8. Incomes rise and demand for bus travel falls. What type of good is it?
9. Price of tea rises. Does the demand for coffee shift left or right?
10. On a diagram, which curve shape shows perfectly inelastic demand?
11. In a market, price of a drink falls from £3 to £2.40 and quantity rises from 500 to 650. Calculate PED.

Answers

1. Wherever buyers meet sellers to exchange goods, services or resources.
2. Primary; it produces goods.
3. Wages earned in factor markets are spent in product markets (or demand for labour is derived from demand for the product).
4. Repetitive work, narrow skills or risk of unemployment (any one).
5. Price +25%; quantity (680 − 800) ÷ 800 = −15%; PED = −15 ÷ 25 = −0.6.
6. Falls by 0.3 × 20 = 6%.
7. Inelastic (0.6 is below 1). Revenue before 3,200; after 5 × 680 = 3,400, so it rises.
8. An inferior good.
9. Right: coffee is a substitute, so demand for it increases.
10. A vertical line.
11. Price −20%; quantity +30%; PED = −1.5 (elastic).

Where marks are usually lost

• Saying demand rose after the good’s own price fell; that is an extension, a rise in quantity demanded.
• Dividing by the new figure instead of the original.
• Leaving out units, or stating PED without saying elastic or inelastic.
• Claiming revenue always rises with a price cut.
• Describing specialisation benefits only, with no cost or judgement.
• Mixing up primary and secondary (processing is secondary).
• Naming a good as a service, or a service as a good.
• Giving a list of factors that shift demand but no consequence for producers or consumers.

Official syllabus

Source: Cambridge OCR, GCSE (9-1) Economics specification (J205), Version 2.0 (June 2026), for first assessment in 2019. Covered here: 2.1 and 2.2.