12

Quarter 1 – Module 3
The Market: Demand, Supply,
and Equilibrium

SDO Taguig City and Pateros

Introductory Message
For the facilitator:

This module was collaboratively designed, developed and evaluated by the

Development and Quality Assurance Teams of SDO TAPAT to assist you in helping
the learners meet the standards set by the K to 12 Curriculum while overcoming
their personal, social, and economic constraints in schooling.

As a facilitator, you are expected to orient the learners on how to use this module.
You also need to keep track of the learners' progress while allowing them to manage
their own learning. Furthermore, you are expected to encourage and assist the
learners as they do the tasks included in the module.

For the learner:

This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.

The following are some reminders in using this module:

1. Use the module with care. Do not put unnecessary mark/s on any part of the
module. Use a separate sheet of paper in answering the exercises.
2. Don’t forget to answer Let’s Try before moving on to the other activities
included in the module.
3. Read the instruction carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking your answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are through with it.
If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you are
not alone.

We hope that through this material, you will experience meaningful learning and
gain deep understanding of the relevant competencies. You can do it!
 Let’s Learn

This module was designed and written with you in mind. It is here to help you analyze
market demand, market supply and market equilibrium. The scope of this module
permits it to be used in many different learning situations. The language used
recognizes the diverse vocabulary level of students. The lessons are arranged to follow
the standard sequence of the course. But the order in which you read them can be
changed to correspond with the textbook you are now using.

The module is divided into three lessons, namely:

 Lesson 1 – Law of Demand and the Determinants of Demand
 Lesson 2 – Law of Supply and the Determinants of Supply
 Lesson 3 – Market Equilibrium and Disequilibrium

After going through this module, you are expected to:

1. describe the application of the law of demand and supply
2. explain the demand function, demand schedule and demand curve
3. explain the supply function, supply schedule and supply curve
4. discuss the different determinants of demand
5. discuss the different determinants of supply
6. analyze the market demand, market supply and market equilibrium
 Let’s Try

Choose the letter of the best answer. Write the chosen letter on a separate sheet of
paper.

1. It refers to a graphical representation showing the relationship between price

and quantities demanded per time period?
a. demand
b. supply
c. demand curve
d. supply curve

2. It pertains to the quality of good or service that people are ready to buy at a
given prices within a given time period, when other factors besides price are
held constant.
a. demand
b. supply
c. market
d. products

3. It is generally understood as a “state of balance.”

a. market
b. equilibrium
c. demand
d. supply

4. It refers to goods interchanged with another good.

a. complementary goods
b. substitute goods
c. inferior goods
d. normal goods
5. It is a condition in the market where the quantity demanded is higher than
the quantity supplied at a given price.
a. equilibrium
b. surplus
c. price control
d. shortage

6. It refers to the condition in the market where the quantity supplied is more
than the quantity demanded.
a. supply
b. demand
c. surplus
d. shortage
 Lesson
Law of Demand and The
1 Determinants of Demand
Demand is an important concept in economics that every entrepreneur ought to
recognize. The profitability and sustainability of an enterprise relies upon the
existence of demand for a good or service.

This lesson helps you understand the law of demand and identify determinants that
change the demand.

Let’s Recall

Answer each question with a complete sentence on a separate sheet of paper.

1. What is the main economic problem?

2. What does scarcity mean?
3. What is opportunity cost?
4. Why do you need to make wise decision in economics?

Let’s Explore

Activity 1.1:
Complete the demand schedule for Product X during the month if the demand
function is Qd = 400 − 3P. Plot the demand schedule in a graph to present the
demand curve.

P Qd
₱50
190
90
70
130
 Let’s Elaborate

Demand is a schedule that shows the quantity of goods or services that

consumers are willing and able to buy given a list of possible prices during a specific
period.

There are different ways to present the demand for a good or a service.

1. demand function shows the relationship between the demand for a goods
and the factors that determine or influence this demand. The inverse
relationship between price and quantity demanded is given in an algebraic
expression.
2. demand schedule is a table that shows the relationship of prices and
specific quantities demanded at each of these prices. Demand schedule
may be obtained by substituting values for P (price) in the given demand
function and solving for Qd (quantity demand).
3. demand curve is a graphical representation showing the relationship
between the prices and quantities demand per time period. The demand
curve has a negative slope which indicates the inverse relationship
between price and quantity demanded.

Example:

Complete the demand schedule for Product X during the month if the demand
function is Qd = 400 − 3P. Plot the demand schedule in a graph to present the demand
curve.

P Qd
Demand Curve for Product X during
₱50 250 the Month
70 190 300
90 130 250
110 70 200
PRICE

150
130 10 100
50
0
Solution: 50 70 90 110 130
Qd = 400 − 3P Quantity Demand
= 400 − (3 × 50)
= 400 − 150
Qd = 250

Qd = 400 − 3P
= 400 − (3 × 130)
= 400 − 390
Qd = 10
LAW OF DEMAND
The law of demand states that, ceteris paribus or all else being equal, people
tend to buy more at lower prices and less at higher prices (Cruz 2017).

LAW OF DEMAND

Figure 1: Law of Demand

Source: ©2019 Michael K. Powell

Determinants of Demand
1. Consumer Taste and Preferences
 This relates to the personal likes and dislikes of consumer for a
certain good or service and this could be brought about by means
of various factors including character’s age, sex, health condition,
religion, culture, way of life, and changes in technology
 There will be an increase in demand for a good when it is popular.
However, if the good is no longer popular or liked, then the demand
for that good will decrease.
2. A Change in Income
 A change in people’s income can change demand. An increase in
people’s income will often lead to an increase in demand. However,
if incomes go down, consumers will buy less, which will lead to a
decrease in demand. (Powell 2019)
 A normal good is a good whose demand rises as income increases
 An inferior good is a good whose demand falls as income rises
3. Population Change (Number of buyers)
 Population can also affect the demand for a good. If there is an
increase in number of people, then there will likely be an increase
in demand (Powell 2019).
4. Price of Related Goods
 The price of a substitute or a complement is also important in
assessing how the demand for a good or a service may change.
 Substitute goods are goods that are interchanged with other goods
and generally offered at a cheaper price making these more
attractive for buyers to purchase.
 Complementary goods are goods that are used together. In other
words, one good cannot exist without the other good. Example
would be ink cartridges are used with printers (Cruz 2017).
5. Expectations of Future Prices
 If consumers expect for a price of good to rise (or fall) in the future,
it may result for the current demand to increase (or decrease).
 Expectations about the future may also alter the demand for a
specific product.
 Let’s Dig In
Activity 1.2
Complete the demand schedule below if Qd = 250 − 4P. If product Z increases demand
to 50%, what will be the new quantity demand (Qd-new) in the market?
Demand Schedule
Price (P) Quantity Demand (Qd) Qd-new
Php 10
178
Php 25
122
81

Activity 1.3
Plot the old and new demand curves in the same graph. Use different color for old
and new demand curve. Did the new demand curve shift to the right or to the left?

Demand Curve

Let’s Remember

Answer each question with a complete sentence on a separate sheet of paper.

1. How do you define market in economics?
2. What does demand mean?
3. What causes the change on price for a surgical mask in the market today?
4. What does the law of demand say?
5. What are the determinants of demand? Give one example each in relation to
the current economic situation in the Philippines.
 Lesson
Law of Supply and The
2 Determinants of Supply
This lesson helps you understand the law of supply and explain determinants that
change the supply.

Let’s Recall

Answer each question with a complete sentence on a separate sheet of paper.

1. What does demand means?

2. What does the law of demand say?
3. How does the determinants of demand influences the demand curve to move
either left or right?
4. What happens to the demand for a good or service if the price of a good or
service increases?
5. What is the change in demand of goods when price decrease?

Let’s Explore

Activity 2.1:
Complete the supply schedule for Product X during the month if the supply
function is Qs = −150 + 4P. Graph the supply schedule to present the supply curve.
Supply Schedule Supply Curve
P Qs
₱100
120
410
490
180
 Let’s Elaborate

Supply is the quantity of goods or services that an enterprise is able and

willing to produce for sale to consumers. The supply for a good or a service may be
presented using supply function, supply schedule, and supply curve. The supply
schedule may be obtained by substituting values for P (price) in the given supply
function and solving for Qs (quantity supply).

Example:
Complete the supply schedule for Product X during the month if the supply
function is Qs = −150 + 4P. Graph the supply schedule to present the supply curve.

P Qs
Supply Curve for Product X during
₱100 250
the Month
120 330
140 410 600
160 490 500
180 570
400
PRICE

Solution: 300
200
100
0
100 120 140 160 180

Quantity Supply

LAW OF SUPPLY
The law of supply states that the sellers will sell more at a higher price (Cruz 2017).

Figure 2: Law of Supply

Source: ©2019 Michael K. Powell
Determinants of Supply
1. Changes in the Number of Sellers
 When there are more sellers in the market, the higher is the supply
of a good or service.
2. Changes in Resource Price
 The cost of production of a good affect the supply in the market.
When the factors of production that is used to manufacture a
product or good increases, the manufacturer opt to decrease the
supply.
3. Changes in Technology
 The use of new technology affects the amount of supply a business
will produce. The use of new technology tends to lower the cost of
production which results to higher profit for the business. If the
profit is high, the business will produce more supply.
4. Prices of Other Goods
 An increase in the price of other goods (a good that requires the
same input and technology) can influence the production decision
of a firm. The firm may opt to produce more supply for a good with
high price and less supply for a good with a lower price.
5. Taxes and Subsidies
 When the government imposes a tax on a business, this will result
to an increase in the cost of production. An increase in the cost of
production will lead to a decrease in supply because of a decrease
in profit. However, when the government decides to provide a
subsidy to a business, this will lead to increase in supply. This is
because subsidy serves as an incentive for a business.
6. Price Expectation
 When the supplier anticipate a changes in price, government
policies, and growth in the economy to happen in the future, the
tendency is for them to supply less than what they would have and
wait until such time that they could sell their product at a higher
price.
7. Exportation and Importation
 Exportation leads to decrease in supply while importation leads to
an increase in supply.
 Removing quotas and tariffs on imported products also affects the
supply. Lower trade restrictions and lower quotas or tariffs
increases imports resulting to an increase in supply of goods in the
market.
8. Natural Calamities and Disasters
 Natural calamities and disasters like typhoons and floods can
destroy our agricultural products which results to shortage in
supply during that time.
 Let’s Dig In

Activity 2.2:
Complete the supply schedule below if Qs = −50 + 2P. If many sellers stop operating
and, as a result, output becomes 50% lower in the market, what will be the new
quantity supply (Qs-New).
Price (P) Quantity Supply (Qs) Qs – New
Php 30
40
Php 60
100
65

Activity 2.3
Plot the old and new supply curves in the same graph. Use different color for old and
new supply curve. Did the new supply curve shift to the right or to the left? Briefly
explain.

Let’s Remember

Fill in the blank/s. Complete the given statement below.

1. ______________ states that the sellers will sell more at a higher price
2. When subsidy is provides to a business, the supply _________
3. ______________ is the quantity of goods or services that an enterprise is able
and willing to produce for sale to consumers
4. When the cost of production rises, the supply ____________
5. If taxes is imposed by the government, the supply ___________
6. The determinants of supply are number of sellers, natural calamities and
disaster, resource price, _______, ________, _________, __________, ________.
 Lesson

3 Market Equilibrium

This lesson combines the concepts of demand and supply. The meeting of supply
and demand results to what we referred to as market equilibrium.

Let’s Recall

Answer each question with a complete sentence on a separate sheet of paper.

1. What do you define supply?
2. Why does supply is said to be the opposite of demand?
3. Why does a producer want to make more of a good when prices rise?
4. What does the law of supply say?
5. What are the determinants of supply?

Let’s Explore

Activity 3.1
Directions:

A. Complete the demand and supply schedule using the given demand and
supply functions: Qd = 320 − 2P and Qs = −130 + 3P. Show your complete
solution

Price QD QS
50
60
70
80
90
100
110

B. Plot the demand and supply curves in the same graph. Use different color for
each curve.
C. What is the equilibrium price (Pe)?
D. What is the equilibrium quantity (Qe)?
 Let’s Elaborate

 Market equilibrium exists when quantity demanded equals quantity supplied.

 Equilibrium price is a price where both consumers and producers accept and
agree on it. This can be solved algebraically by equating the demand and supply
functions.
 Equilibrium point is where the demand and supply curves intersects.
 Shortage is a condition in the market in which demand is higher than supply
 Surplus is a condition in the market in which quantity supplied is higher than
the quantity demand

Example:

A. Complete the demand and supply schedule using the given demand and
supply functions: Qd = 320 − 2P and Qs = −130 + 3P. Show your complete
solution

Price QD QS
50 220 20
60 200 50
70 180 80
80 160 110
90 140 140
100 120 170
130 60 260

Solutions:

Qd = 320 − 2P Qs = −130 + 3P
= 320 − (2 × 50) = −130 + (3 × 50)
= 320 − 100 = −130 + 150
Qd = 220 Qs = 20

Qd = 320 − 2P Qs = −130 + 3P
= 320 − (2 × 130) = −130 + (3 × 70)
= 320 − 260 = −130 + 210
Qd = 60 Qs = 80

B. Plot the demand and supply curves in the same graph. Use different color for
each curve.

Equilibrium point
PRICE

Quantity Demand
Quantity Supply

Equilibrium
Price
 C. What is the equilibrium price (Pe) and equilibrium quantity (Qe)?

QD = QS Qe = 320 − 2P
320 − 2P = −130 + 3P Qe = 320 − (2 ∗ 90)
3P + 2P = 320 + 130 𝐐𝐞 = 𝟏𝟒𝟎
450
Pe =
5
𝐏𝐞 = 𝟗𝟎

Let’s Dig In

Activity 3.2
Directions:
A. Complete the demand and supply schedule using the given demand and
supply functions: Qd = −4P + 420 and Qs = 3P + 70. Show your complete
solution.

Price QD QS
5
15
25
50
60
75
90

B. Plot the demand and supply curves in the same graph. Use different color for
each curve.
C. What is the equilibrium price (Pe) and equilibrium quantity (Qe)?

Let’s Remember

Directions: Complete the sentence on a separate sheet of paper.

1. The difference between supply and demand is _________________________.
2. Market equilibrium means ____________________________________________.
3. Market disequilibria occur when ______________________________________.
4. Surplus occurs when _________________________________________________.
5. Shortage occurs when ________________________________________________.
 Let’s Apply

Activity 4.
Analyze the graph and answer the following questions on a separate sheet of paper.

Source: (Laraya, De Leon and Santos 2019)

1. At what point does a consumer want to buy 16 to 19 units of goods?

2. At what point does a consumer want to buy unit of goods at a price of 10?
3. At what point does a consumer want to buy 45 units of goods?
4. At what point does a consumer want to buy units of goods at a price of 27?
5. At what point does a consumer want to buy units of goods at a price of 18?
6. At what point does quantity supplied changes from 30 to 42?
7. A producer wants to sell his units of goods at a price of 17 at what point?
8. A producer wants to sell his units of goods at a price of 15 at what point?
9. Quantity supplied is 79 at what point?
10. A producer wants to sell his units of goods at a price of 55 at what point?
 Let’s Evaluate

Choose the letter of the best answer. Write the chosen letter on a separate sheet of
paper.

1. It shows the inverse relationship between price and quantity demanded.

a. demand schedule
b. algebraic equation
c. demand function
d. demand curve
2. It is the amount of a good that consumers are willing to buy.
a. demand
b. supply
c. equilibrium price
d. market equilibrium
3. It happens when the goods is not enough to meet demand.
a. equilibrium point
b. shortage
c. surplus
d. price ceiling
4. It occurs when there are too many extra goods that could not be sold.
a. demand
b. supply
c. shortage
d. surplus
5. It refers to goods interchanged with another good.
a. Complementary goods
b. Substitute goods
c. Inferior goods
d. Normal goods
6. The law of demand states that as the price of a good or service increases, the
consumer demand for good or service ________________
a. Increases
b. Decreases
c. Does not change
d. None of these are correct
7. An increase in competition, will lead to ____________
a. a decrease in supply
b. an increase in supply
c. no change in supply
d. All of the above.
8. When the cost of production increases for a good, it will lead to an ___________
a. increase in supply.
b. increase in profit.
c. decrease in supply
d. none of the above
9. To decrease a surplus of goods, an enterprise will most likely raise the price.
a. True b. False
10. A shortage occur when the producer sets the price below the equilibrium price.
a. True b. False
 Let’s Try Let’s Remember
1. C 1. Law of supply
2. A
3. B
2. Increases
4. B 3. Supply
5. D 4. Decreases
6. C 5. Decreases
6. Changes in technology
Lesson 1:
7. Price of other goods
Let’s Dig In
1. Demand Schedule
8. Taxes and subsidies
9. Price expectation
Price Qd Qd - New 10. Exportation and Importation
10 210 315
Let’s Dig In
18 178 267
1. Supply and Demand Schedule
25 150 225
Price QD QS
32 122 183
5 400 85
49 54 81
2. The demand curve shifts to the right 15 360 115
25 320 145
Lesson 2: 50 220 220
Let’s Dig In
60 180 250
1. Supply Schedule
75 120 295
Price QS QS - New
90 60 340
30 10 5
2. Show demand and supply curve
45 40 20 3. Pe = Php50 and Qe=220 unit
60 70 35 Let’s Apply
6. F
75 100 50 1. C
7. F
90 130 65 2. A, B, E 8. G
3. B 9. H
2. The supply curve shifts to the left
10. J
4. C
5. D
Let’s Evaluate
1. C
2. A
6. B
3. B 7. B
4. D
5. B
8. C
9. B
10. A
Answer Key
2. What forces cause the demand and supply curve to go up or down?
forces that affect them.
1. Discuss the movements of demand and supply curves relative to the
Directions: Essay
Let’s Extend
References
Cruz, M. A. (2017). Business Economics, (pp 18-21). Mandaluyong City: Anvil
Publishing, Inc.
Laraya, J. De Leon J., & Santos, R. (2019), Applied Economics (pp. 19-26).
Mandaluyong: Books Atbp. Publishing Corp.
Tullao Jr, T. (2015). Understanding Economics in the Philippine Setting. (pp.
153-158). Quezon City: Pheonix Publishing House, Inc.
Viray Jr, E. & Avila-Bato, J., (2018). Applied Economics (pp. 9-20).
Mandaluyong: Anvil Publishing Inc.

Development Team of the Module

Writers: Suzanne M. Paderna
Editors:
Content Evaluator:
Language Evaluator:
Reviewers: Joana Feliza P. Guevara
Illustrator: Name
Layout Artist: Name
Management Team: DR. MARGARITO B. MATERUM, SDS
DR. GEORGE P. TIZON, SGOD Chief
Name of EPS in-charge of Learning Area
DR DAISY L. MATAAC, EPS – LRMS/ALS

For inquiries, please write or call:

Schools Division of Taguig city and Pateros Upper Bicutan Taguig City

Telefax: 8384251

Email Address: sdo.tapat@deped.gov.ph