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Applied Economics: Week 3: Module 3
Applied Economics: Week 3: Module 3
Applied Economics: Week 3: Module 3
Applied Economics
Week 3: Module 3
i
ABM • Applied Economics
Grade 11/12: Week 3: Module 3
First Edition, 2020
Copyright © 2020
La Union Schools Division
Region I
All rights reserved. No part of this module may be reproduced in any form
without written permission from the copyright owners.
Management Team:
A market system is a powerful tool for the allocation because the changes in price
from market transactions create incentives and disincentives on buyers and sellers to
address disparities between demand and supply. The instrument of allocation is the
market price determined by the interactions of the buyers and the seller in the market.
This module will help you understand how demand and supply interact in a market
to determine the equilibrium price and the quantity.
After going through this module, you can attain the following objectives:
Learning Competency:
Analyze market demand, market supply, and market equilibrium.
(ABM_AE12-Ie-h-4to5)
Subtasks:
1. State the law of demand and supply, and define market equilibrium
2. Explain the law of demand and supply and illustrate how equilibrium price
and quantity are determined
3. Discuss and explain the factors affecting demand and supply
4. Apply the principles of demand and supply to illustrate how prices of
commodities are determined
5. Analyze how demand and supply forces can affect the value of the Philippine
peso about foreign currencies.
Before going on, check how much you know about this topic.
Answer the pretest on the next page in a separate sheet of
paper.
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Jumpstart
For y o u t o u n d e r s t a n d t h e l es s o n w e l l , d o t h e f o llo w i n g
activities. Have fun and good luck!
PRE-TEST
I. Multiple Choice: Choose the letter of the correct answer. Write your answer on
a separate sheet of paper.
_____1. What economic term refers to the amount of some goods or services that
are consumers willing and able to purchase at each price?
A. Demand B. Equilibrium C. Market D. Supply
_____2. What economic term refers to the quantity of goods that the seller is willing to offer
for sale?
A. Demand B. Equilibrium C. Price D. Supply
_____3. Which refers to the quantity of a commodity that producers are willing to sell at a
particular price at a particular point in time?
A. Quantity supplied C. Supply schedule
B. Supply D. Supply curve
_____4. Choose the word that makes the statement incorrect in this statement – “In
substitution effects of goods, when the price of mango increases, pineapple can
be a substitute for mango.”
A. Increases C. Substitute
B. Pineapple D. Substitution effects
_____5. Headline news today, September 28, 2020, that the price of gasoline per liter will
rise on September 30, 2020. What is the result of this news?
A. Supply of gasoline decreases.
B. The price of a liter of gasoline falls today.
C. Today's demand for gasoline increases.
D. Today's supply of gasoline increases.
II. Identification: Read and analyze the question. Identify what is being asked in the
sentence. Write your answer in a separate sheet of paper.
________________ 1. It states that other factors being constant (ceteris paribus), price, and
quantity demand of any goods and services are inversely related to
each other. When the price of a product increases, the demand for
the same product will fall.
________________ 2. Using the same assumption of ceteris paribus, there is direct
relationship between the price of a good and the quantity supplied
of that good.
________________ 3. It is the interaction between buyer and sellers of trading or exchange.
________________ 4. The state in which the market supply and demand balance each
other.
________________ 5. The total number of units purchased at that price.
III. TRUE OR FALSE: Write the word TRUE if the statement is correct and FALSE if it is
incorrect about the non-price determinants of demand and supply.
______1. A good for which consumers’ tastes and preferences are greater, its demand
would be large, and its demand curve will therefore lie at a higher level.
______2. The higher income means greater purchasing power.
______3. When the price of a substitute for a good fall, the demand for that goodwill
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decline, and when the price of the substitute rises, the demand for that goodwill
increase.
______4. If the factors of production become cheap, the supply will decrease, and vice
versa.
______5. The volume of production or supply is also influenced by progress in the
the technique of production.
Discover
MARKET DEMAND, MARKET SUPPLY, AND MARKET EQUILIBRIUM
Economists use the term demand to refer to the amount of some good or service
consumers are willing to purchase at each price. Demand is based on needs and wants—
a consumer may be able to differentiate between a need and a want, but from an
economist’s perspective, they are the same.
What a buyer pays for a unit of the specific good or service is called price. The total
number of units purchased at that price is called the quantity demanded. A table that
shows the quantity demanded at each price is called a demanding schedule. A demand
curve shows the relationship between price and quantity demanded on a graph.
Demand
The quantity demanded is determined at each price with the following demand
functions: Qd – 6-P/2. At a price of Php10 per bottle, Ana is willing to buy one bottle of
vinegar for a given month. As the price goes down to Php8, the quantity she is willing to
buy goes up to two bottles. At a price of Php 2, she will buy five bottles. There is a negative
relationship between the price of a good, and the quantity demanded that good. A lower
price allows the consumer to buy more, but as price increases, the amount the consumer
can afford to buy tends to go down.
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The demand curve is a graphical illustration of the demand schedule with the price
measured on the vertical axis (Y), and the quantity demanded measured on the horizontal
axis (X). The value is plotted in the graph and is represented as connected dots to derive
the demand curve (Figure 1). The demand curve slopes downward, indicating the negative
relationship between the two variables: price and quantity demanded.
12 1, $10
10 2, $8
8 3, $6
Price
6 4, $4
4 5, $2
2 6, $0
0
0 2 4 6 8
Figure 1: Hypothetical Demand Curve of Martha for Vinegar (In Bottles) in One Month
The downward slope of the curve indicates that as the price of vinegar increases,
the demand for the sound decreases. The negative slope at the demand curve is due to the
income and substitution effect.
The income effect is felt when a change in the price of a good changes consumers'
real income or purchasing power, which is the capacity to buy with a given income.
Purchasing power is the volume of goods and services one can buy with his/her income.
The substitution effect is felt when a change in the price of a good changes demands
due to alternative consumption of substitute goods. For example, lower prices encourage
consumption away from higher-priced substitutes on top of buying more with the budget
(income effect). The higher price of a product encourages cheaper substitutes, further
discouraging demand for the former already limited by less purchasing power (income
effect).
Using the assumption of” ceteris paribus,” which means all other related variables
except those that are being studied at the moment and are held constant, there is an
inverse relationship between the price of a good and the quantity demanded good.
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Factors Affecting Demand of a Commodity
Supply
Supply refers to the quantity of goods that the seller is willing to offer for sale. The
supply schedule shows the different quantities the seller is willing to offer for sale. The
supply schedule shows the different quantities the seller is willing to sell to different prices.
The supply function shows the dependence of supply on the various determinants that
affect it.
Assuming that the supply function is given as Qs: 100 + 5P and is used to determine
the quantities supplied at the given prices. Supply can be illustrated using a table or a
graph. A supply schedule is a table, like Table 2, that shows the quantity supplied at a
range of different prices. A supply curve is a graphic illustration of the relationship
between price, the vertical axis (Y), and quantity supplied, shown on the horizontal axis (X).
The supply schedule and the supply curve are just two different ways of showing the same
information
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Price of Fish (per Kilo) Supply (in kilos)
Php 20 200
40 300
60 400
80 500
100 600
As shown in Table 2, the relationship between the price of fish and the quantity
that Jose is willing to sell is direct. The higher the price, the higher the quantity supplied.
When plotted into a graph, we obtain the supply curve.
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Price of Fish (Per
40 300, P40
20 200, P20
0
0 200 400 600 800
Quantity Supplied (in kilos)
We derive a supply curve upward sloping or slopes from left to right, indicating the
direct relationship between the price of the good and the quantity supplied of that good.
From Php20 per kilo to Php100 per kilo, the quantity supplied increase from 200 to 600
per kilos. Conversely, as the price falls, the quantity supplied decreases.
The law of supply demonstrates the quantities that will be sold at given price. The
higher the price, the higher the quantity supplied and vice versa.
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Factors Affecting Supply of a Commodity
Price of production inputs – The production of any commodity will require two major
inputs- intermediate inputs or raw materials and factor inputs. Intermediate inputs
refer to the materials, including raw materials that are still going to be processed
or transformed into higher levels of outputs. The factor inputs are the processing
or transforming inputs. Some examples of factor inputs are labor, capital, land, and
entrepreneurship. These factors inputs are the ones adding value to the raw
materials through the process of production. When the price of theses production
inputs increases, there will be an increase in the cost of production at every level of
production. With the cost of production increased at a given price level, sellers will
reduce the quantity supplied at alternative prises.
Taxes – Business establishments are required to pay a number of taxes to various
levels of government. It is a monetary expense on the part of the firms, the payment
of taxes can be considered as a part of the cost of production, although taxes are
not factor inputs nor raw materials; they are still considered as part of operating a
business. Thus, an increase in sales tax, real estate tax, and other business taxes
can increase the cost of supplying a commodity. This may discourage the sellers
from increasing their supply of a commodity in the market.
Technology – Some firms may use labor-intensive technology if the cost of labor is
relatively cheap. On the other hand, firms may use capital-intensive technology if
wages are very high. Improvements in the technology used by some firms can lower
their production costs and make their firm more competitive. A lower-cost may
encourage these firms to supply more of the commodity since they can sell it at a
reduced price.
Expectation – The expectation or anticipation of what will happen on the price of
the commodity can also influence the amount supplied in the market. If there is an
expectation that rice prices will increase next season, this may encourage farmers
to plant more rice next season. The expectation of a higher price next season can
discourage the rice dealers from selling the rice currently. Some of them will hoard
so they can sell in the future with higher returns.
The supply curve is a vertical line; over time, the supply curve slopes upward;
the more supplier expects to be able to charge, the more they will be willing to produce
and bring to market.
In the equilibrium point, the two slopes will intersect. The market price is
sufficient to induce suppliers to bring to market that same quantity of goods that
consumers will be willing to pay for at that price.
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MARKET EQUILIBRIUM
When the supply and demand curves intersect, the market is in equilibrium. This
is where the quantity demanded and the quantity supplied are equal. The corresponding
price is the equilibrium price or market-clearing price; the quantity is the equilibrium
quantity.
The intersection of supply and demand determines the equilibrium price and
quantity. The equilibrium occurs where the quantity demanded is equal to the quantity
supplied. If the price is below the equilibrium level, then the quantity demanded will
exceed the quantity supplied. Excess demand or a shortage will exist. If the price is above
the equilibrium level, then the quantity supplied will exceed the quantity demanded.
Excess supply or a surplus will exist. In either case, economic pressures will push the
price toward the equilibrium level. A change in supply, demand, or both, will necessarily
change the equilibrium price, quantity, or both. It is highly unlikely that the change in
supply and demand perfectly offset one another so that equilibrium remains the same.
Explore
Assessment 1:
Direction: Read and analyze the sentence. Identify what factor affecting the demand and
supply is being asked in the sentence. After identifying the factor, classify if it is a factor
that affects demand or supply by writing the word Demand or Supply on the second space.
Write your answer in a separate sheet of paper. (2 points each number)
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________________, ____________ 1. Customers may no longer want a product,
reducing demand.
________________, ____________ 2. Customers may no longer want a product,
reducing demand.
________________, ____________ 3. This implies that climate conditions
directly affect the supply of certain
products.
________________, ____________ 4. This implies that the supply of a product
would decrease with the increase in
production and vice versa.
________________, ____________ 5. It can increase the cost of supplying a
commodity, which may discourage the
sellers from increasing their supply of the
commodity in the market.
________________, ____________ 6. Better and advanced technology increases
the production of a product
________________, ____________ 7. The size and characteristics of the market
can also be influencing the demand for a
commodity.
_______________, ____________ 8. If people have more money, the demand
for products can increase.
_______________, ____________ 9. As the population increases, there are
more buyers.
______________, ____________ 10. Such fiscal policy and industrial policy
has a greater impact on the supply of a
product.
Enrichment Activity 2: Fill in the Blanks: The Law of Demand and Supply
Assessment 2:
Direction: Read and analyze the sentence. Fill in the missing word to make the statement
correct. Answer in a separate sheet of paper.
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________________11. It is felt when a change in the price of a good changes demand due to
alternative consumption of substitute goods.
________________12. The second major actor in a market whose primary purpose in selling
is to maximize profit.
________________13. A graphic illustration of the relationship between price, shown on the
vertical axis (Y), and quantity supplied, shown on the horizontal axis
(X).
________________14. The total number of units purchased at that price.
________________15. The number of commodities that producers are willing to sell at a
particular price at a particular point in time.
Deepen
At this point, you are now ready to apply your knowledge of what you had
learned about demand and supply in real-life situations.
Direction: Analyze the three (3) problems. The following data were taken from an invoice
of Company X. The company imports gasoline from other countries. ( Use graphing paper
for your answers.
Price
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a.2 Analyze the data and describe the curve.
_______________________________________________________________________________________
_______________________________________________________________________________________
_________________.
Quantity Supplied
C.) c.1 Using the data from demand and supply (refer to A & B), determine the equilibrium
point of the demand and supply curves.
Price
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c.2. How much is the equilibrium price? Interpret your answer on the demand and
supply for gasoline base on the chart you plotted.
_______________________________________________________________________________________
_______________________________________________________________________________________
_________________________________________________________________________________.
GRAPHING RUBRIC
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Gauge
Post Test
I. Multiple Choice.
Directions: Read each item carefully. Write only the letter of the best answer for each
test item. Use a separate sheet for your answers.
_____1. What microeconomic law states that all other factors being equal, as the price of
a good or service increases, consumer demand for the goods or services will
decrease and vice versa?
A. Ceteris paribus C. Law of Supply
B. Law of Demand D. Law of Supply and Demand
_____2. Which law states that all other factors being equal, as the price of a good or service
increases, the quantity of goods or services that suppliers offer will increase?
A. Ceteris paribus C. Law of Supply
B. Law of Demand D. Law of Supply and Demand
_____3. What economic term refers to the willingness of the consumer to buy a commodity
at a given price?
A. Demand C. Price
B. Equilibrium D. Supply
_____4. What economic term refers to the quantity of goods that the seller is willing to
offer for sale?
A. Demand C. Price
B. Equilibrium D. Supply
____ 5. Choose the economic term that refers to the quantity of a commodity that producers
are willing to sell at a particular price at a particular point in time?
A. Quantity supplied C. Supply Schedule
B. Supply D. Supply curve
_____6. Classify the following factors affecting the demand of a commodity. Which does
NOT belong to the group?
A. Income C. Price of Production Inputs
B. Market D. Taste
_____7. Classify the following factors affecting the supply of a commodity. Which does
NOT belong to the group?
A. Market C. Taxes
B. Price of Production Inputs D. Technology
_____8. Applying the law of demand, other things remaining the same,
A. As the demand for cheeseburgers increases, the price of a cheeseburger will
fall.
B. As income increases, the quantity of cheeseburgers demanded will increase.
C. As the price of a cheeseburger rises, the quantity of cheeseburgers demanded
will decrease.
D. As the price of a cheeseburger rises, the quantity of cheeseburgers demanded
will increase.
_____9. Being a grade 12, what commodities are in demand to you and other learners
during this school year?
I. Branded school bag III. Smartphone
II. Laptop IV. Wifi
A. I & II C. II & IV
B. II & III D. III & IV
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_____ 10. Analyze the given choices; what does it mean when economists speak of
references as influencing demand?
A. an individual's attitudes toward goods and services.
B. directly observable changes in prices and income.
C. the availability of a good to all income classes.
D. the excess of wants over the available supplies.
C. Essay
Direction: Answer briefly but accurately the question below. Write your answer in a
separate sheet of paper. (10 points)
COVID-19 is a public health crisis, but it has significant economic effects. During the
period of ECQ until this time, what did you observed about the economy in our country
and your community regarding the demand and supply of goods services? List at least ten
in-demand goods & services during this pandemic.
_______________________________________________________________________________________
_______________________________________________________________________________________
___________________________________________________________________________.
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KEY ANSWER
JUMPSTART:
PRE-TEST
I. MULTIPLE CHOICE
1. A 2. D 3. A 4. B 5. D
II. IDENTIFICATON
1. Law of Demand 3. Market 5. Quantity Demanded
2. Law of Supply 4. Equilibrium
III. TRUE OR FALSE
1. TRUE 3. TRUE 5. TRUE
2. TRUE 4. FALSE
EXPLORE:
ACTIVITY 1 / ASSESSMENT 1
1. Taste & Preference, Demand 6. Technology, Supply
2. Consumer expectation, Demand 7. Market, Demand
3. Natural conditions, Supply 8. Income, Demand
4. Price of production inputs, Supply 9. Population (No. of consumers), Demand
5. Tax, Supply 10. Government policies, Supply
ACTIVITY 2 / ASSESSMENT 2
1. Demand 6. Ceteris paribus 11. Substitution effect
2. Supply 7. Negative 12. Supplier
3. Market 8. Direct 13. Supply Curve
4. Consumer 9. Excess supply / Surplus 14. Quantity Demanded
5. Demand Curve 10. Income effect 15. Quantity Supplied
DEEPEN:
A. )a.1
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a.2 ) A Demand Curve for Gasoline. The demand schedule shows that as price rises, quantity demanded
decreases, and vice versa. The downward slope of the demand curve illustrates the law of demand—
the inverse relationship between prices and quantity demanded.
B. b.1)
b.2) A Supply Curve for Gasoline. The supply schedule i shows the quantity supplied of gasoline at
each price. As price rises, quantity supplied also increases, and vice versa. The upward slope of the
supply curve illustrates the law of supply—that a higher price leads to a higher quantity supplied, and
vice versa.
C. c.1)
c.2) The equilibrium price is $1.40 per gallon of gasoline and the equilibrium quantity is 600 million
gallons. If you had only the demand and supply schedules, and not the graph, you could find the
equilibrium by looking for the price level on the tables where the quantity demanded and the quantity
supplied are equal.
GAUGE:
I.) 1. B 3. A 5. A 7. A 9. C
2. C 4. D 6. C 8. C 10. D
II.) (Answers may vary)
The economy in our county and in our community hibernates for the sake of public safety. The
freeze, triggers a chain from job losses to business closures. during this time, we are experiencing a
pandemic COVID 19, the demand for face mask, face shield, alcohol and other Personal Protective
Equipment (PPE), groceries, online food delivery, medical care supplies, sportswear, shoes and even
garden plants.
References
BOOK(s)
1. Applied Economics, Manila, REX Book Store, 2017
2. Applied Economic for A Progressive Philippines, Quezon City, Phoenix
Publishing House Inc., 2016
3. Learner’s Module K-12 Grade 12 Applied Economics (First Quarter Applied
Economics)
LINKS
1. https://opentextbc.ca/principlesofeconomics/chapter/3-1-demand-supply-
and-equilibrium-in-markets-for-goods-and-services/
2. https://www.google.com/search?source=hp&ei=BntsX-KDAY_70gSb-
ovoAg&q=market+equilibrium&oq=market+equi&gs_lcp=CgZwc3ktYWIQARg
AMggIABCxAxCDATICCAAyAggAMgIIADICCAAyAggAMgIIADICCAAyAggAM
gIIADoFCAAQsQM6CAguELEDEIMBOgUILhCxAzoLCC4QsQMQxwEQowI6Ag
guOgsILhCxAxCDARCTAjoLCC4QsQMQxwEQrwFQiQtYlDBgzkRoAXAAeAC
AAZ4EiAHnD5IBCTAuOS4xLjUtMZgBAKABAaoBB2d3cy13aXqwAQA&sclien
t=psy-ab
3. https://economictimes.indiatimes.com/definition/law-of-demand
4. https://www.economicsdiscussion.net/supply/7-factors-which-affect-the-
changes-of-
supply/1645#:~:text=ADVERTISEMENTS%3A,Monopolies%20(vii)%20Fiscal%
20Policy.
5. https://economictimes.indiatimes.com/definition/quantity-demanded
6. https://economictimes.indiatimes.com/definition/quantity-
supplied#:~:text=Definition%3A%20Quantity%20supplied%20is%20the,a%20
particular%20point%20of%20time.
7. https://www.investopedia.com/terms/l/law-of-supply-demand.asp
8. https://www.thoughtco.com/calculating-economic-equilibrium-1147698
9. https://www.ducksters.com/money/supply_and_demand.php
10. https://www.sagepub.com/sites/default/files/upm-
binaries/97660_Chapter_4_Demand%2C_Supply%2C_and_Market_Equilibri
um.pdf
11. https://www.rappler.com/newsbreak/in-depth/what-philippine-economy-
could-be-like-after-coronavirus
12. https://koax.com/docs/supply-and-demand-worksheet-answers-16a7df
13. https://staffwww.fullcoll.edu/fchan/Micro/1MKTEQUIL.htm#:~:text=Equilib
rium%20price%20and%20quantity%20are,that%20equilibrium%20remains%
20the%20same.
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