Applied Economics – Grade 12

Learning Activity Sheets

Third Quarter Week 3

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Published by the Department of Education – Schools Division of Tacloban City

Schools Division Superintendent: Mariza S. Magan
Assistant Schools Division Superintendent: Edgar Y. Tenasas

Development Team of the Activity Sheet

Writer: Eduardo R. Galapon III

Marilou P. Grego
Evaluator: Jocelyn T. Balagusa
Management Team:
CID Chief: Mark Chester Anthony G. Tamayo
Division EPS of LRMS: Gretel Laura M. Cadiong
Division Learning Area EPS: Charlemagne T. Escobarte

Department of Education - Region No. VIII – Schools Division Office of Tacloban City
Office Address: Real St., Tacloban City

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 APPLIED ECONOMICS 12
Quarter Week 3

Name: _________________________ Section: ______________ Date: _________

Learning Activity Sheet No. 3 Date Answered: _______________

Utilizing Applied Economics

Application of Demand and Supply

“Let’s kick it off!”

Directions: Analyze the picture in answering the question below.

1. How do you determine the prices of goods and services?

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2. What will happen if the prices of basic commodities will keep on increasing?
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3. Is there any effective way of keeping the prices of basic commodities at levels that
are accessible to the masses?

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 “Are you taking it?”

Activity: Show Me The Plot

Directions: Plot the following hypothetical market demand and

supply schedules for commodity Y and explain the graph. Do this in
a graphing paper.

Quantity Supplied Price Quantity Demanded

5 P 6.00 9
6 P 7.00 8

7 P 8.00 7
8 P 9.00 6

9 P10.00 5
10 P11.00 4

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 “Here’s how it is”

The Meaning of Demand

Demand is the schedule of various quantities of commodities
which buyers are willing to purchase at various prices in a given
time and place. In simple terms, demand means that someone
wants something. In economics, it also means a group people want
to buy certain goods or services.
Demand tells us what people want. It also tells us what they
can buy at a certain time and place. Because it involves buying, it
also involves at what price people can buy it or are willing to buy it.
Determinants of Demand
1. Income. The amount of money people earns affects how much
or how little they buy. For example, the factory worker earns P10,
000 every month while the businessman earns P30,000. This
means the factory worker has less money. He can buy less than the
businessman. However, when the income of the factory worker
goes up, he can buy more. Still, this will not mean that he can
already buy as much as the businessman can. But if the income of
the businessman goes down, he can buy less.
This means that a change in income leads to a change in the
demand for goods and services. More money means more
demand. Less money means less demand.

Population. More people means more demand for goods

and services. That is why, we can observe that there are
more buyers in the city stores than in the barrio stores.
Conversely, less population means less demand for goods
and services. Obviously, business is poor in the rural areas
compared to business in the urban areas.
2. Tastes and preferences. Demand for goods and services
increases when people like or prefer them. Such tastes or
preferences are greatly influenced by advertisement or fashion. On
the other hand, if a certain product is out of fashion, the demand for
it decreases.
3. Price Expectations. When people find out that prices are about
to increase, they buy more of these goods before the price
changes. When people find out that prices are about to go down,
they will not demand these goods as much.
Why do people act like this? It is because they want to use
their money wisely. They want to economize. It means they want to

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spend properly to buy what they want or need at the best possible
price. They want to save money even after buying things.
4. Price of related goods. When the price of a certain good
increases, people tend to buy substitute products. For example, if
the price of Colgate increases, consumers buy less of Colgate and
more of the close substitute like Close-up
or Hapee. This means, the demand for Colgate decreases while the
demand for substitutes increases. This means, if the price of one
good increases, the demand for the other good increases. For
substitutes then, price and quantity demanded are directly related.
(Pagoso, 2006)

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Law of Demand
The law of demand may be stated as “the quantity of a
commodity which buyers will buy at a given time and place will vary
inversely with the price.” This means that as price increases,
quantity demanded decreases, and as price decreases, quantity
demanded increases other things are constant.
There are two ways of explaining why people buy more or
less of a good depending on price:
1. Income effect. At lower prices, an individual has a greater
purchasing power. This means he, can buy more goods and
services. But at higher prices, naturally, he can buy less.
2. Substitute effect. Consumers tend to buy goods with lower prices.
In case the price of a product that they are buying increases, they
look for substitutes whose prices are lower. Thus, the demand for
higher priced goods will decrease. (Dinio and Villasis, 2017)

The Ceteris Paribus Assumption

The law of demand states that as price increases, quantity

demanded decreases, and as price decreases, quantity demanded
increases. Such theory is true if we apply the Ceteris Paribus
assumption wherein it assumes that “all other things equal or
constant.” Meaning, the determinants of demand are constant and
are not considered as factors that will affect demand in the market.
Thus, the law of demand, using the Ceteris Paribus, can be
restated as “assuming that the determinants of demand are
constant, price and quantity demanded are inversely
proportional to each other.”

However, if the determinants of demand are considered major

factors or greatly affects the demand in the market, then, the
Ceteris Paribus assumption is dropped.

Validity of the Law of Demand

As price increases, quantity
demanded decreases; As price
decreases, quantity demanded
increase.
A demand schedule reflects the quantities of goods and
services demanded at different prices. To understand this fully, let
us analyze a hypothetical demand schedule of brand X in the
market as shown in Table 1.

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 Table 1. Hypothetical Demand Schedule of B
From the table, it is shown
that an individual would
tend to buy more when its
price is low than when the
price is high.
At a price of P35.00,
quantity demanded by the
consumers is 5 while a
decrease of price to
P5.00 increases the
quantity

PRICE QUANTITY DEMANDED

5 35

10 30

15 25

20 20

25 15

30 10

35 5

The demand schedule shown in Table 1 can also be

understood through graphical illustration known as the demand
curve. In many instances, it is more convenient to express the
relation between prices and quantity demanded by means of a
demand curve. Figure 1 shows the translation of Table 1 into a
graphical illustration.

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Figure 1. Graphical Illustration of a Demand Curve

In Figure 1, price is
presented on the vertical
axis and quantity
demanded on the
horizontal axis. The points
can be connected in a
continuous curve. We label
our demand curve with D,
which means demand, to
indicate that it is the entire
demand schedule.
It can be noted that
the demand curve is
sloping down. It shows that
price and quantity
demanded are inversely
proportional. This inverse
relationship between prices
and quantity demanded
depicts the law of demand.

The Meaning of Supply

Supply is the schedule of various quantities of commodities
which producers are willing and able to produce and offer at various
prices in a given time and place. In other words, supply is the
amount of goods and services available for sale at given prices in a
given period of time and place. Supply implies the ability and
willingness of sellers to sell.

Determinants of Supply
1. Technology. This refers to the method of production or how
something is produced. Having modern technology means being
able to produce more. This means more supply. If producers had to
rely on old technology which uses animals instead of machines,
production would be slower. Better technology means more supply
produced and less cost of producing these goods.
2. Cost of production. This refers to the things a producer has to
spend on to keep making goods and services. This includes: raw
materials, laborers, bank loan interests, taxes, and land or building
rent. An increase in cost of production makes it harder for the
producer because he or she has to pay more to keep producing.
This is why when the cost of producing goes up, the supply of
goods most likely goes down.
The producer, given a higher cost of production, cannot
produce as much. Wage is a cost of production. Think of a factory.

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A factory needs workers. The owner of the factory needs to pay the
workers so that they will help him or her make goods. Wage is a
cost that the owner has to pay. It is the cost of making something.
This means that if the owner has to pay more wage, the cost of
production goes up. This means supply of the goods will go down.
For example, businessmen don’t want to sell more goods if
they are not sure that they will get as much money. If they have to
pay workers more, that means less of their profit will stay with the
owners. They have to give more of what they earn to the workers.
What if sellers just increase price when cost of production goes up?
Won’t this help them get more money? It might, but not all the time.
Remember that higher prices mean less people will buy. This
means that if the cost of production doesn’t go down soon, sellers
will continue losing money. They might have to stop producing
completely.
3. Number of sellers. More sellers or more factories means an
increase in supply. On the other hand, less sellers or factories
means less supply.
4. Prices of other goods. Since a price increase means less
demand, a producer may choose to produce something else to
continue gaining profit or to have more profit. Let us say, the price
of rice goes up. If so, then a farmer may choose to produce more
corn instead because he knows that less people will buy rice from
him.
Price expectations. If producers expect prices to rise very soon,
they usually keep their goods and then release them in the market
when the prices are already high. Sadly, this leads producers to
keeping their supply of goods until prices increase. This is called
artificial shortage. This is usually what happens when the
government says that the prices of some basic goods are about to
go up.
Some basic goods are: gasoline, rice, milk or cooking oil.
What about if producers expect a price decrease? In this case, they
will lessen production. Still, there are some exceptions, like farmers.
They cannot lessen their crop supply especially when their crops
are already growing. On the other hand, many factories increase
the number of their goods due to expected price increase.
5. Taxes and Subsidies. Certain taxes increase the cost of
production. Higher taxes discourage production because it reduces
the earnings of businessmen. That is why the government extends
tax exemptions to some new and necessary industries to stimulate
their growth. Similarly, tax incentives are granted to foreign
investors in order to increase foreign investment in the Philippines.
This will result to more goods.
In the case of subsidies, there is financial assistance to
producers. Clearly, subsidies reduce the cost of production. This
induces businessmen to produce more. (Dinio and Villasis, 2017

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10
The Law of Supply
The law of supply states that the quantity offered for sale will
vary directly with price. This means that as price increases quantity
supplied also increases; and as price decreases, quantity supplied
also decreases. This direct relationship between price and quantity
supplied is the law of supply. Producers are willing and able to
produce and offer more goods at a higher price than at a lower
price. Obviously, sellers offer more goods at higher prices because
they make more profits. Such behavior of sellers or producers is a
natural inclination. No businessman is willing to produce goods if he
makes no profit.

The Ceteris Paribus Assumption of Supply

The law of supply is only correct if we apply the assumption of
ceteris paribus. This means the law of supply is valid if the
determinants of supply like cost of production, technology, number
of sellers and so forth, are held constant.

Validity of the Law of Supply

As price increases, quantity supply also

increases, As price decreases, quantity
supply also decreases

The supply schedule shows the different quantities that are

offered for sale at various prices. The supply schedule may reflect
the individual schedule of only one producer or the market schedule
showing the aggregate supply of a group of sellers or producers.
Table 2 gives you an idea of a supply schedule.

Table 2 indicates that a seller offers a big quantity of brand Y

in the market if the price is high and likewise, sells only a few
when the price is low.
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Table 2. Hypothetical Supply Schedule of Brand Y

PRIC QUANTITY
E SUPPLIED
5 5
10 10
15 15
20 20
25 25
30 30
35 35
 The supply schedule as shown in Table 2 can also be
illustrated in graphical form known as the supply curve. This is
shown in Figure 2.

Figure 2. Graphical Illustration of the Supply Curve

It can be noted that

the supply curve
has an upward
slope. It shows that
price and quantity
supplied are
proportional to each
other. This kind of
relationship depicts
the law of supply.
We label our supply
curve with S to
indicate the entire
supply schedule.

“Now do it!”

Activity: Show Me the Plot

Directions: Plot the following hypothetical demand schedule of pork and supply schedule of
bangus in the market in a graphing paper and explain each graph.

Price of Beef (Per Kilo) Quantity Demanded (In Kilos)

Php 150.00 90
Php 140.00 100
Php 100.00 130
Php 75.00 150
Php 60.00 170
Php 40.00 200

Price of Bangus (Per Kilo) Quantity Supplied (In Thousands)

Php 120.00 700
Php 100.00 650
Php 90.00 600
Php 75.00 500
 “Ace it!”

Activity: SUM ME UP

Based on the lesson, I have learned that

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RUBRICS

  5 (Excellent) 4 (Good) 2-3 (Fair) 0-1 (Poor)

Content Selected items that Selected items that Select items and Select items and
are important and are important in details that discuss details that are not
help make content discussing the the activities for the important or
interesting; the activities for the week, but they are relevant.
details focus on the week; the details not very important.
most important help the reader see
information. Choices things about the
help the reader see items in interesting
things in a new way. ways.
Comprehensibility Can understand all of Can understand most Can understand less Can understand little
what is being of what is being than half of what is of what is being
communicated. communicated. being communicated. communicated.
Organization Journal entry is Journal entry is Journal entry is Journal entry lacks
logical and effective. generally logical and somewhat illogical logical order and
effective with a few and confusing in organization.
minor problems.  places.
Effort Exceeds the Fulfills all of the Fulfills some of the Fulfills few of the
requirements of the requirements of the requirements of the requirements of the
assignment and have assignment. assignment. assignment.
put care and effort
into the process.
Grammar, Journal is highly Journal is polished; Journal is adequate; Inadequate
Mechanics, Spelling, polished; no maximum of one maximum of two discussion; more
and Sentence grammar or spelling grammar or spelling grammar or spelling than two spelling or
Structure errors. error. errors.
ANSWER KEY:

Show Me The Plot 1

PRICE

QUANTITY

PRICE

QUANTITY

Show Me The Plot 2

 PRICE

QUANTITY

Sum Me UP

(answers may
vary)

References
Bangko Sentral ng Pilipinas. “Treasury Department Reference Exchange Rate Bulletin”.
July 30, 2020.

Dinio, Rosemary P. and George A. Villasis, eds. 2017. Applied Economics. Manila,
Philippines. Rex Book Store.

Leańo, Roman Jr. D. 2012. “Fundamentals of Economics with Agrarian Reform,

Taxation and Cooperatives (A Modular Approach)”. Manila, Philippines.
Mindshapers Co., Inc.

Macrotrends. Philippine Inflation Rate (2010-2019) June

30,2020. https://www.macrotrends.net/countries/PHL/philippines/inflation- rate-cpi.

Pagoso, Cristobal M. et al., eds. 2006. Introductory Microeconomics. Manila, Philippines.

Rex Book Store.

Philippine Statistics Authority. Survey on Overseas Filipinos. 2014

Philippine Statistics Authority. Philippine Unemployment Rate from 1999- 2019.

https://www.statista.com/statistics/578722/uemployment-rate-in-philippines/

Villegas, Bernardo M. eds. 2010. Basic Economics. Center of Research and Communication
Foundation, Inc., Manila, Philippines.