Senior High School

12

APPLIED ECONOMICS

MELC: Determine the implications of market pricing and market

equilibrium.

 K to 12 BEC CG: ABM_AE12-Ie-h-6

MODULE 4

Objectives:
1. Compare the prices of commodities and analyze the impact on consumers.

Prepared by:

VENUS A. VIADO
SHS- TII
 Let’s get ready to rumble bubble!
A Direction: Arrange the jumbled letters in order to answer the
guided question. All words pertain to market pricing. You can do
it!

PCERI

ICOMEN FFECTE LASTICITYE

Guided questions:
1. What are the similarities of the given economic terms?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_________
2. Which of the following terms is new to you?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
3. In your opinion, are they considered as a part of Philippine economy?
_______________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________

_______________________________________________________________________

Pre-Test

Directions: This activity will help you to remember familiar terms or

concepts about market pricing and equilibrium. Write the letter of the
correct answer in the space provided before each number. Good luck!

1. What does OFW means?

A. Overseas Foreign Workers C. Overseas Filipino Workers
B. Overall Filipino Workers D. None of the above
2. What kind of currency was established during the Commonwealth period?
A. Philippine peso C. US Dollars
B. Piloncitos D. None of the above
3. What is the use of applied economics in Philippine economy?
A. Analytically review potential outcomes
B. Apply statistical and mathematical theories
C. Increase production
D. Validate economic theories
4. How can you categorize the statement “affordable housing”?
A. Cheap housing C. Luxurious housing
B. Expensive housing D. Quality housing
5. Which of the following is NOT a cause of unemployment?
A. No job opening C. Poverty
B. No Vacancy D. Scarcity
6. What is Europe’s monetary currency?
A. Dollar C. Real
B. Euro D. Ringgit
7. Which of these statements is the MOST root cause of unemployment?
A. No job opening C. Underemployment
B. Poverty D. None of the above
8. What could be the initial action of consumers if prices of basic commodities increase
in the market?
A. Consumers will look for expensive products
B. Consumers will resort to grocery items
C. Consumers will buy luxurious items
D. Consumers will look for substitute goods
9. Which of the following statement is NOT TRUE about peso depreciation?
A. Domestic tourists find it expensive to visit places abroad because they will
need more pesos to buy dollars.
B. Exporters and overseas Filipino workers and their dependents now receive
more pesos for every dollar they exchange.
 C. Higher prices in peso terms for imported goods and services.
D. It fuels inflation due to increase in the price of imported goods.
10. What could be the reason in the slowdown in remittances as stated by the World
Bank?
A. A weak peso will negate the impact of crude oil prices abroad.
B. Political uncertainties in host countries.
C. Slowdown in the advanced economies.
D. Stricter implementation of the migrant workers bill of rights.
11. Which of the following market types has the fewest number of firms?
A. Monopolistic competition C. Oligopoly
B. Monopoly D. Perfect competition

12. What is the difference between perfect competition and monopolistic competition?
A. In perfect competition , firms produce identical products, while in
monopolistic competition does not.
B. Perfect competition has a large number of small firms while monopolistic
competition does not.
C. Perfect competition has barriers to entry while monopolistic competition dos
not.
D. Perfect competition has no barriers to entry while monopolistic competition
does not.

13. Why is there a need for the Philippine government to identify the need to promote
entrepreneurial spirit to the younger generation?
A. Large numbers of Filipino seek to find a better opportunity abroad.
B. To have adequate access to innovation of technology and proper
management in entrepreneurship that could make our political and
economic condition stable.
C. To establish a longer hour of work in the business sector.
D. To promote political will.
14. Which of the following is the best example of a perfectly competitive market?
A. Athletic shoes C. Farming
B. Diamonds D. Soft drinks
15. Why is perfect competitive firms are considered as price takers?
A. Each firm is very large
B. Many other firms produce identical products.
C. Their Demand curves are downward sloping.
D. There are no good substitutes for their products.
 Lesson 4
Pertaining to Prices of Basic Commodities

Rice remains the most important food item in the daily meals of Filipinos. It
comprises the bulk of their total volume of consumption and amount of expenditures for the
15 most consumed agricultural food in the Philippines.
However, the sensitivity of quantity demanded for rice to the change of price of rice is
not only explained solely by the change in its price itself (substitution effect) but also by the
change in the real income (income effect) of consumers.
Among the other selected commodities, the estimated cross-price elasticities indicate
that corn, sweet potato, and cassava are the most substitutable. On the other hand, potato,
taro, milkfish, tilapia, pork, chicken, banana, mango, pineapple, eggplant, and bitter gourd are
all considered rice compliments.
If ever prices of basic commodities in the market increases, naturally, the tendency of
the consumers is to look for substitute products which are lesser in price. For example, if
price of meat increases in the market, the consumers will look for a cheaper price substitute.
Meat can be substituted by fish or chicken or vegetables. Always, the consumers tend to look
for cheaper price substitute of commodities in the market.
How it Works?
If the quantity demanded changes a lot when prices change a little, a product is said to
be elastic. This often is the case for products or services for which there are many
alternatives, or for which consumers are relatively price sensitive. For example, if the price
of Chocolate A doubles, the quantity demanded for Chocolate B will fall when
consumers switch to less-expensive Chocolate B.
When there is a small change in demand when prices change a lot, the product is said
to be inelastic. The most famous example of relatively inelastic demand is that for
gasoline.

Something to remember!
1. Elasticity is important because it describes the fundamental relationship between the
price of a good and the demand for that good.
2. Elastic goods and services generally have plenty of substitutes.
3. Inelastic goods have fewer substitutes and price change does not affect quantity
demanded.

 Example of elastic goods and services include furniture, motor vehicles,

instrument engineering products, professional service, and transportation
services.
 Example of inelastic goods include gas, electricity, water, drinks, clothing,
food, and oil.
What is Price Elasticity?
 Price elasticity of demand is the measure of responsiveness of the quantity demanded
of a good caused by a change in its price.

Importance of price elasticity of demand

It is very important for government and private suppliers to take into consideration
price elasticity of demand for economic decision-making.

1. The government uses the price elasticity of demand for the following reasons.
- Sales taxes increase the price of goods. In order to increase tax revenue the government
imposes this tax on elastic goods. For example, rice and tinned fish.
- Tariffs such as import duties and taxes increase the prices of goods. The government may
impose tariffs on inelastic goods to increase tax revenue. For instance, imported goods like
cars. - Devaluation of currency to promote export and discourage imports. In such situations
government need to know the elasticity of demand for exports and imports.
- Subsidies for producers to reduce the cost of production and provide some relief to
consumers. If subsides are to benefit consumers government should subsidize inelastic goods.
For example, agriculture produces like coconut and coffee.
2. When suppliers need to revise their product prices demand elasticity is an import
consideration. If a supplier wants to increase price and revenue, the decision is easier with
inelastic goods and more difficult with elastic goods.
- By increasing the price of an inelastic good, a supplier can increase total revenue.
- By decreasing the price of an elastic good, a supplier can increase total revenue.
- By changing the price of a good with unitary elasticity, a supplier cannot change total
revenue.

Other concepts of Elasticity

1. Elasticity- it is a measure used in response to changes in the determinants of demand
and supply.
2. Price elasticity- a measure used in determining the percentage change in quantity
against the percentage change in price.
3. Income elasticity- the percentage change in quantity of one good compared to the
percentage change in the price of related goods.
 4. Cross elasticity- percentage change in quantity of one good compared to the
percentage change in the price of related goods.

To derive the price elasticity of demand, we use the formula:

ep= Percentage change in quantity demanded
Percentage change in price

Therefore: Q2-Q1
ep= Q1
P2-P1
P1
Example:
Price Quantity Demanded
4 100
5 60

Let: Q1= 100 P1= 4

Q2= 60 P2= 5

Solution: ep= 60-100

100
5-4
4 = -0.4
0.25
= -40 = -1.6
100
1
4

* The mathematical presentation of price elasticity of demand has a negative sign due to the
inverse relationship of price and quantity demanded.

Types of Elasticity
You have already learnt about how to calculate demand elasticity. You will now learn
about the different types of price elasticity of demand. There are five types of price
elasticities. Depending on the coefficient, price elasticity of demand is classified as follows:
 Coefficient Types of Elasticity
Less than 1 (E ˂ 1) Elastic
Equal to 1 (E= 1) Inelastic
Greater than 1 (E ˃ 1) Unitary
∞ (infinite) Perfectly Elastic
0 Perfectly Inelastic

What is Price Elasticity of Supply?

The elasticity of supply is also the response of quantity offered for sale every change
in price. Like, the consumers , the suppliers also respond to price changes.
Formula:
Percentage change in quantity supplied
es=
Percentage change in price

es= Qs2-Qs1
Qs1
P2-P1
P1

Example: Given the following supply schedule of commodity X:

Price Quality Supplied
P12.00 38
P21.00 56
Let Qs2= 56 P2= P21.00
Qs1= 38 P1= P12.00

Therefore: 56-38
= 38
21-12
12
 = 18
38 = 0.47
9 0.75
12 = .62
Equilibrium Price is the price at which the quantity demanded equals the quantity
supplied.
Calculating Excess Supply: At the market price of sugar, there is excess supply of 400 units.
Example:
400 units
Quantity Supplied – Quantity Demanded =600 units – 200 units = excess

Calculating Excess Demand: At the market price of sugar, there is excess demand of 200
units. Example:
Quantity Demanded- Quantity Supplied =500 units - 300 units = 200 units
excess

Post- Test

Directions: Choose the letter of your answer that best completes the statement.
Write your answer on the space provided.

1. What could be the initial action of consumers if prices of basic commodities increase
in the market?
A. Consumers will look for expensive products
B. Consumers will resort to grocery items
B. Consumers will buy luxurious items
C. Consumers will look for substitute goods
2. Which of the following statement is NOT TRUE about peso depreciation?
A. Domestic tourists find it expensive to visit places abroad because they
will need more pesos to buy dollars.
B. Exporters and overseas Filipino workers and their dependents now
receive more pesos for every dollar they exchange.
C. Higher prices in peso terms for imported goods and services.
D. It fuels inflation due to increase in the price of imported goods.
3. In economics, the study of the importance of the availability of basic needs of the
consumers is vital. This is provided in the management of the producer. What do you
call the quantity of products that a producer is willing to sell to the consumers?
A. Demand C. Production
B. Equilibrium D. Supply
4. What is Europe’s monetary currency?
A. Dollar C. Real
B. Euro D. Ringgit
5. Which of these statements is the MOST root cause of unemployment?
A. No job opening C. Underemployment
B. Poverty D. None of the above
6. What does OFW means?
A. Overseas Foreign Workers C. Overseas Filipino Workers
B. Overall Filipino Workers D. None of the above
7. What kind of currency was established during the Commonwealth period?
A. Philippine peso C. US Dollars
B. Piloncitos D. None of the above
8. What is the use of applied economics in Philippine economy?
A. Analytically review potential outcomes
B. Apply statistical and mathematical theories
C. Increase production
D. Validate economic theories
9. How can you categorize the statement “affordable housing”?
A. Cheap housing C. Luxurious housing
B. Expensive housing D. Quality housing
10. Which of the following is NOT a cause of unemployment?
A. No job opening C. Poverty
B. No Vacancy D. Scarcity
11. Why is there a need for the Philippine government to identify the need to promote
entrepreneurial spirit to the younger generation?
A. Large numbers of Filipino seek to find a better opportunity abroad.
B. To have adequate access to innovation of technology and proper management
in entrepreneurship could make our political and economic condition stable.
C. To establish a longer hour of work in the business sector.
D. To promote political will.
12. Which of the following is the best example of a perfectly competitive market?
A. Athletic shoes C. Farming
B. Diamonds D. Soft drinks
13. Why is perfect competitive firms are considered as price takers?
A. Each firm is very large
B. Many other firms produce identical products.
C. Their Demand curves are downward sloping.
14. There are no good substitutes for their products. Which of the following market types
has the fewest number of firms?
A. Monopolistic competition C. Oligopoly
B. Monopoly D. Perfect competition
15. What is the difference between perfect competition and monopolistic competition?
A. In perfect competition , firms produce identical products, while in
monopolistic competition does not.
B. Perfect competition has a large number of small firms while monopolistic
competition does not.
C. Perfect competition has barriers to entry while monopolistic competition
dos not.
D. Perfect competition has no barriers to entry while monopolistic
competition does not.
Key Answer:
Pre-Test
1. C
2. B
3. B
4. A
5. D
6. B
7. B
8. D
9. C
10. D
11. A
12. A
13. B
14. D
15. B
Post-Test
1. D
2. C
3. D
4. B
5. B
6. C
7. B
8. B
9. A
10. D
11. B
12. D
13. B
14. A
15. A

References:

Case, Karl E. & Fair, Ray C. (19990. Principles of Economics. (5th ed.). Prentice Hall, ISBN
0-13-961905-4
Castillo, Andres V. Philippine Economics. Revised Edition, Manila, 1989
Leano, Jr. Roman, Applied Economics for Senior high School. Mindshapers Co., INC.
Manila, 2016