Illustration: www.google.

com

DR. CLEOPAS BETTE R. JACUTIN

PETER ANTHONY ESTIOKO
 48

PREFACE

This module was designed to introduce learners to the fundamentals of microeconomics

and expose them to the principal theories and models used by economists. It demonstrates
how economics can be used by individuals and firms alike to assess problems and develop
solutions.

Economics supports a great deal of decision-making not only in business but also in our
everyday lives and as such is an essential cornerstone of this subject. Economics is typically
divided into two main branches namely microeconomics and macroeconomics. While
macroeconomics is concerned with the economy as a whole microeconomics examines the
individual parts of the economy and focuses on how individuals and firms make decisions and
how these decisions interact.

It is hoped that this module will further capacitate learners particularly economics majors
with knowledge in microeconomics and serve as a useful reference to all those who need a
deeper understanding and appreciation of economics as a social science in general.

DR. CLEOPAS BETTE R. JACUTIN

PETER ANTHONY ESTIOKO

Economics Department
Bukidnon State University
August 24, 2020
 48

Course Outcomes

On successful completion of this module, the learner will be able to:

CO1: Analyze the various roles of households and

firms in various economic activities;
CO2: Evaluate basic economic tools in the analysis of
diverse economic conditions/phenomena;
CO3: Critique the link between microeconomic
theories and actual economic phenomena; and
CO4: Create a graphical analysis paper presenting the
effects and influence of microeconomic concepts
to current economic situations and or policies.

Learning Modalities

 Instructor’s Notes and Modules uploaded via Google Classroom or printed to be

delivered thru a courier.
The instructor’s notes/modules will be provided weekly, via the Google classroom. A
facebook group page for the class is also suggested. The said notes/modules will be uploaded
there also for easy access. Learners are expected to visit Google classroom, preview and
download the materials uploaded there and accomplish assignments posted thereat.
 Textbooks and online downloadable materials
Lecture notes or instructional modules have been created by the instructor and did not
follow a particular published material/textbook. However, books acknowledged in the
references herein are highly recommended although not required.
 Miscellaneous Readings/Educational Videos uploaded via Google Classroom
Various reading or video materials about how economics can be useful in practice and
applied to the reality will be introduced through the facebook group page. These additional
readings are important supplementary learning aids and the students are expected to take the
materials seriously. Many of them, if not all, will be discussed during the classes.
 Case Discussion
Learners are expected to apply their learning to the real situations through the case
studies. Cases, designed by the instructor to fit with the major economic topics, are composed
of the news/articles/reports from academic journals, newspapers, professional magazines and
internet sites etc. Each case comes with a set of discussion questions prepared by the
instructor to guide students, who will be asked to challenge these cases as a group and present
their work in classes. Problem Sets Problems sets comprise comprehensive questions which
will require a solid understanding of the course materials and an ability to reshape them.
Problem Sets are not solely for an assessing of your knowledge but should rather be taken as
an independent learning vehicle.
 Group Topic Presentation via Zoom and Google Classroom (if applicable)
Each group is to select a topic and give a presentation during the second half of the
semester. Further details will be discussed by the instructor.
 48

MICROECONOMICS
TABLE OF CONTENTS

T O P I C PAGE
Preface 2
Course Outcomes 3
1. Introduction to Microeconomics 5
2. Circular Flow 14
3. Economic Systems 20
4. Demand 24
5. Supply 34
6. Market Equilibrium 38
7. Elasticities 43
8. Market Structures 51
9. Consumer Behavior 57
References 65
Assessment Tools/Rubrics 66
 48

CHAPTER 1 INTRODUCTION

SPECIFIC LEARNING OUTCOMES:

At the end of the lesson the students are expected to:
1. Discuss the basic microeconomic concepts and the important
contributions of individual households, firms and other economic
sectors to the overall economy in the Circular Flow model.

2. Present a video review paper.

LESSON 1
BASIC CONCEPTS OF MICROECONOMICS

Overview of Microeconomics:

Watch the video clip: Basic Economic

Concepts. (2016)
https://www.youtube.com/watch?v=2izx5W1FAEU

 Economics is a social science that examines how people choose among

the alternatives available to them. It also examines how people choose
among the alternatives available to them. It is social because it involves
people and their behavior. It is a science because it uses, as much as
possible, a scientific approach in its investigation of choices.

 Economics is concerned with scarcity. If something is not scarce, there is

no economic problem.

Scarcity and the Fundamental Economic Questions

The choices we confront as a result of scarcity raise three sets of issues.

Every economy must answer the following questions:

1. What should be produced? Using the economy’s scarce

resources to produce one thing requires giving up another.
Producing better education, for example, may require cutting
back on other services, such as health care. A decision to
preserve a wilderness area requires giving up other uses of the
land. Every society must decide what it will produce with its
scarce resources.
 48

2. How should goods and services be produced? There are all

sorts of choices to be made in determining how goods and
services should be produced. Should a firm employ a few skilled
or a lot of unskilled workers? Should it produce in its own country
or should it use foreign plants? Should manufacturing firms use
new or recycled raw materials to make their products?
3. For whom should goods and services be produced? If a
good or service is produced, a decision must be made about who
will get it. A decision to have one person or group receive a good
or service usually means it will not be available to someone else.
For example, representatives of the poorest nations on earth
often complain that energy consumption per person in the United
States is many times greater than energy consumption per
person in the world’s scores of poorest countries. Critics argue
that the world’s energy should be more evenly allocated. Should
it? That is a “for whom” question

Factors of Production

 Land

- natural resources available for production

- renewable resources: those that replenish

- non-renewable resources: cannot be replaced

 Nonrenewable energy resources, like coal, nuclear, oil, and natural

gas, are available in limited supplies. ... Renewable resources are
replenished naturally and over relatively short periods of time. The five
major renewable energy resources are solar, wind, water (hydro),
biomass, andgeothermal.

 Labor

- physical and mental effort of people used in production

 Capital

- all non-natural (manufactured) resources that are used in

the creation and production of other products

 Enterprise (Entrepreneurship)

- refers to the management, organization and planning of

the other three factors of production
 48

ACTIVITY: Into the Covid Era

Instructions: Answer the statement below and upload via Facebook

group page or Google Classroom using the template provided.

1) Explain the three fundamental Economic questions in the

context of the Covid Era.

Activity Template:

Name :
Subject & Section :
Topic :
Date :
Instructor :

Part 1: Explain in your own understanding of the three fundamental

economic questions.
Part 2: Discuss the application of these three fundamental economic
questions in the present Covid era.

 Microeconomics is a branch of Economics which deals with the study of

behavior of individual economic units particularly the individuals and firms. It
looks at how they react and how they interact to form larger units and create
impacts to the flow of economic transactions.

 Economics uses theory to explain actions and predict future actions. For
example if: the Lakers are in the playoffs, then there will be a larger number
of people wanting tickets than if they have a poor season. If there is high
unemployment, then at the university more students enroll in business
courses because their opportunity costs (pay loss due to being in class)
are less.

Opportunity Costs Are Important

If doing one thing requires giving up another, then the expected

benefits of the alternatives we face will affect the ones we choose.
Economists argue that an understanding of opportunity cost is crucial to the
examination of choices.

As the set of available alternatives changes, we expect that the choices

individuals make will change. A rainy day could change the opportunity cost of
reading a book; we might expect more reading to get done in bad than in
good weather. A high income can make it very costly to take a day off; we
might expect highly paid individuals to work more hours than those who are
 48

not paid as well. If individuals are maximizing their level of satisfaction and
firms are maximizing profits, then a change in the set of alternatives they face
may affect their choices in a predictable way.

The emphasis on opportunity costs is an emphasis on the examination of

alternatives. One benefit of the economic way of thinking is that it pushes us
to think about the value of alternatives in each problem involving choice.

Case in Point: Opportunity Cost with The Simpsons

In the animated television comedy The Simpsons, Homer’s father, Grampa

Simpson, faced a classic problem in the allocation of a scarce resource—his
time. He wanted to spend the day with his girlfriend, Bea—it was, after all, her
birthday. His alternative was to spend the day with Homer and the family,
which he did not really want to do, partly because they never visited him
anyway.

Homer and his family prevailed, however, and insisted on taking Grampa to
“Discount Lion Safari,” a local amusement park. The cost of Grampa’s day
with his family is the enjoyment he anticipated from spending time with Bea. It
all ends up badly for Grampa anyway—Homer’s car breaks down on the way
to the park. As for the forgone alternative, Bea dies that day, possibly
because of a broken heart from not being able to spend the day with Granpa.

ACTIVITY: Looking at the Opportunity Cost

 48

source: google.com

 Theory does not work well all the time. The market test of theory is how well
it does in comparison to another theory. A theory must have the possibility to
being proved wrong. The statement "all unmarried men are bachelors" is a
tautology and cannot be proved wrong. The statement "If American Airlines
 48

lowers the ticket price to Bermuda, an increased number of people will fly
this weekend." Can be proved wrong or right.

 Marginal utility theory can be used to derive the demand curve. However it
will be shown later that to get a downward sloping demand curve the only
assumption needed is that consumers buy randomly along the budget line.
=> a minimalist approach to deriving an important economic concept -
downward sloping demand.

 Normative Economics => What should be done. "Microsoft should be

allowed to bundle the IE with Windows XP because it benefits consumers."

 Positive Economics => What will happen, not what should be done. "An
increase in the property tax in the area of UIC will tend to lower the price of
apartments, everything else equal."

 Many decisions involve multiple assumptions. Book example of 1985

decision of Ford to produce the Taurus involved:

1. Consumer tastes vs demand "would they like the car?"

2. How sensitive would demand be to price changes? (elasticity),

3. What would be the production costs? (Depends on assumptions

of #'s of cars produced, union demands, inflation, how fast
workers learn).

4. How would competitors react (market structure).

5. How much new capital would be needed? (interest rates,

engineering).

6. How would the decision be changed if oil prices moved favorably,

unfavorably?

7. How should Ford organize the production?

8. How might anticipated Government regulation changes influence

the decision (Gas mileage requirements).

 What is a Market. A market is the collection of buyers and sellers that,

through their actual or potential interactions, determine the price of a product
or set of products. A market includes more than an industry (a collection of
firms that sell the same or closely related products). Key business decision:
Determining the market for the product!

 If prices differ in two markets, arbitrage may be possible. If the price of a T-

bill maturing in period t in NY is > than the price of the same T-bill in Chicago
=> people will buy in Chicago and sell on the NY market. If the price of a Big-
 48

Mac is less in Norfolk VA than Chicago, arbitrage is NOT feasible, even with
fast planes.

 Markets can be competitive (wheat) or noncompetitive (electric power)

due to entry costs.

 In a competitive market with many producers no one producer can change

the industry price. Product differentiation => power to alter price within
limits. Successful advertising =>  in perceived product differentiation.

 Extent of the market => the boundaries, both geographical and physical of
a market.

 Real vs Nominal Price. Economic decisions should be made on the basis

of real prices. Money illusion => consumer looks at the nominal price not
the real price. Assume two groups: debtors and creditors. Creditors and
debtors set the interest rate depending on their expectations of price
movements. Unexpected price increases (decreases) favor debtors
(creditors).

ACTIVITY: Island Game

 Analyze the advantages and

disadvantages of different systems
in the process of designing an ideal
economy.
 Engage in problem-solving
activities with others that focus on
questions that are central to the
organization of the ideal economy

Suggested Procedure

1) Students are to form groups consisting of four members and select a

Leader and Secretary (Breakout Rooms for Zoom or via Facebook group
page for those who lack internet connectivity).

2) Students are to read the Island scenario. Create roles based on the Island
Scenario.

3) Discuss the questions on the handout Setting up Your Island

Economy (The Scenario) and record answers.
 48

4) In the template provided, explain your decisions and report back to the
whole class how you set up the economy, what issues were encountered, and
how you dealt with it. (Upload your answers via Google Classroom or
Facebook Group Page)

The Scenario

Take a good look around, because these are the people with whom you have
just been Quarantined with on a distant uncharted island.

As far as you know, you are the only survivors of the global pandemic and it is
up to you to develop a new society. This society should meet your needs, as
you define them, and it should avoid the mistakes of "the old ones", those who
died in the recent tragedy.

Use the questions provided to guide your discussion of how you will set up
this new society. Record your answers on a separate sheet of paper headed
by the name you have given to the island.

This is a beautiful island. It is tropical (average temperature 80°F), it has many

sources of food (fruit trees, fish, land for agriculture), and it has a steady wind
from the West of about 15 k.p.h.. Remember, this is not a vacation, you have
work to do!

Roles (sample) – the class or group may opt for other roles***

Interrogator Ask questions one at a time. Keep group moving along and on

schedule.

Recorder Record any group response to each question.

Group Conscience Make sure answers do not conflict with one another and
that they are  consistent with economic plan. Ask questions to help group
develop more specific responses.

Map Specialist Keep others aware of geography and natural resources of

island to help group develop a realistic economy.

SETTING UP YOUR ISLAND GUIDE

Economic Plan
What will be your economic and/or socioeconomic goals? Choose only most important ones,
recognizing trade-offs.
Overall, what will be produced? How will it be produced? For whom will it be produced?
Who will make those decisions (government, individuals or a mix)?
How will your island government be involved in the economy?
Directions: Use answers to "Economic Plan" to determine the following. Make sure your
responses are consistent with your overall plan.
Land/Distribution/Location
Will the land be privately owned? If so, who gets it and how?
 48

Should the land be owned by everyone together?

Should you divide it up and distribute it?
If so, should it be divided equally? What constitutes equal?
Where on the island should you live? (Draw this on map.)
Should you consider the needs of the environment? How?
Who has rights to the water? How will these be provided for?
Labor
What work must be done?
List the kinds of jobs required to sustain the lifestyle you desire.
Who should do these jobs?
What about the jobs that nobody likes?
Does each person just have one job or many?
Land
What natural resources will be used to produce goods?
Will there be rules governing use of natural resources? Why or why not? If yes, which?
Capital
What kind of capital (tools, machines, etc.) will be used to produce goods? How will this
capital be attained?
Basic Needs
Are there some basic needs that you believe should be guaranteed for
all? If so, what are they? Or do you think that individuals should
secure their needs by themselves?

LESSON 2

CIRCULAR FLOW OF ECONOMIC ACTIVITY

INPUT MARKETS

HOUSEHOLDS FIRMS

OUTPUT MARKETS
 48

Figure 1. Circular Flow showing the relationship of Firms and Households with the two
markets

Circular Flow of Economic Activity means continual circular movement of

money and goods in the economy. The concept the circular flow of income is

a simplification which attempts to illustrate the flow of money and goods from

households to business enterprise and back to households.

The input markets are the raw materials or resources used to produce

goods and services. It is also called as economic resources/factors of

production. Economic resources include: land, labor, capital and

entrepreneurship. Land includes soil and natural resources. Labor constitutes

physical and human effort exerted in production. The capital composes man-

made resources used in production of goods and services and

entrepreneurship manages the business operation.

► Our economy is an enormous, constant cycle, with money, products,

and energy flowing back and forth

► Economists refer to this as the Circular Flow of Economic Activity

► The circular flow  is a neoclassical economic model/ graphical

representation depicting how money flows through the economy. In its

simplest version, the economy is modeled as consisting of households

and firms. Money flows to workers in the form of wages and

money flows back to firms in exchange for products.

 48

► Economic Interdependence

 Businesses, households, and the government depend on each

other in order for the economy to run smoothly.

► Our economy is an enormous, constant cycle, with money, products,

and energy flowing back and forth

► Economists refer to this as the Circular Flow of Economic Activity

► The circular flow  is a neoclassical economic model/ graphical

representation depicting how money flows through the economy. In its

simplest version, the economy is modeled as consisting of households

and firms. Money flows to workers in the form of wages and

money flows back to firms in exchange for products.

► Economic Interdependence

 Businesses, households, and the government depend on each

other in order for the economy to run smoothly.

48
48
 48

source: google.com

EMPLOYMENT

INCOME
PRODUCTION

CONSUMPTION

Figure 2. Circular Flow of Economic Activity

ACTIVITY: Video Review paper

 48

Students are required to submit a review paper on attached video. Rubrics

and review paper format will also be posted over Google
Classroom/Facebook Group page.

Watch the video

clip on Circular Flow of
Income: How the different
components of an
economy interact. (2014).

Retrieved from https://www.youtube.com/watch?v=WlgMgppUx_Y.

Activity Template:

Name :
Subject & Section :
Topic : Circular Flow of Activity/Income
Date :
Instructor :

Part 1: Summary of Video

Part 2: Discuss the 2 sector, 3 sector and 4 sector models of Circular Flow
highlighting the Roles of Individual Households and Firms
Part 3: Summary and Conclusion

LESSON 3
ECONOMIC SYSTEMS
 48

ECONOMIC SYSTEMS – is the means through which society determines the

answer to basic economic problems.

• Also, the method used by a society to produce, distribute AND

consume goods and services.
• Or, How the government tells us what we can get and how to get it!

TYPES

1. Traditional Economy- Zero to very minimal government influence in

decision making
2. Command / Controlled Economy – decision making is centralized-
Government
3. Mixed Economy – Decision are made based on market and the
government
4. Market Economy – This is the most democratic form and based on the
workings of demand and supply or the market forces with less government
 48

source: google .com

All Economic Systems Must Consider the Following Questions:

1. What goods and services to produce?

2. How will they produce them?
3. Who will get them?
4. How much will they produce now, and how much later? Or When ?
• Each economic system answers these questions in a DIFFERENT
WAY.

source: google .com

 48

source: google .com

source: google .com

source: google .com

 48

Mixed Economy: No economy is pure market, pure

command or pure traditional, elements of each
appear in all economies, some have more elements of
one economy than another.

MY PIZZARIA shop

Students are required to submit an

essay paper based on the provided
guide questions about setting up your
Pizzaria shop in different Economic
Systems. Rubrics and review paper format will also be
posted over Google Classroom/Facebook Group page.
H O W DO……
• I answer the basic economic questions?
• I determine how much cheese and pepperoni goes
on the pizza?
• I determine the quality of the cheese and
pepperoni
• I set my employees wages?
• I set my business hours?
 48

CHAPTER 2 DEMAND AND SUPPLY ANALYSIS

SPECIFIC LEARNING OUTCOMES:

1. Analyze social problems on a microeconomic level relevant to demand and

supply, market equilibrium, elasticity and consumer behavior.

2. Provide alternative economic solutions thru a Case Analysis paper.

LESSON 4
DEMAND
Economic analysis is very essential and very interesting avenue in the study of
Economics. It is where the two key players of the economy in the micro level – the producers
(firms) and consumers (households) decide. Basically, their decisions are reflected in the
market. Thus rational behaviors of these actors are the focal point of decision making.
By analyzing their behaviors, it is a special way of looking at the world around us –
“the economics way of thinking”.
With the advent of Economics which has two main branches Macroeconomics and
Microeconomics, students are guided to appreciate on how economy works. To understand
the bigger picture of the economy, the students are then exposed to the heart and soul of
Economics – the DEMAND and SUPPLY.

What is DEMAND?

 Demand refers to the ability and willingness of households (HH) to buy

goods and services at alternative prices at a given point in time and place. It has two
important elements:
a. the willingness or desire to buy; and
b. the ability to buy which pertains to the purchasing power of the consumers
 An expression in the market of the cumulative willingness of all households, to buy
different amount of products with a price. It is a market phenomenon, wherein an
individual demand for goods and services and is determined by price.
 48

 Quantity Demanded (Qd) is the amount of goods and services that the households
is willing and able to buy at a alternative prices at a given point in time and place.

A. LAW OF DEMAND
 The negative relationship between Price (P) and Quantity demanded (Qd). As P rises,
Qd decreases. As P falls, Qd increases ceteris paribus (Case and Fair 2002).
 The inverse relationship of P and Qd. As price increases the Qd of the household on
certain goods and services decreases, as the P decreases the Qd will increase
(holding other factors constant).

B. DEMAND SCHEDULE
 A table showing a cumulative
demand of HH’s ability and willingness to buy goods and services at a given time
with a price.
 A tabular representation showing how much of a given product a HH would be able
and willing to buy at different Prices.

Table 1. Hypothetical data of Jan Mikhael’s demand

schedule on candies

Pt P Qd
A 0 180
B 10 150
C 20 120
D 30 90
E 40 60
F 50 30

Table 1 shows the Qd of Jan Mikhael on cakes. We will take a closer look on points C
and B. At point C, the price is P20. Jan Mikhael is willing and able to buy candies of 120.
When the price decreases to P10 (point B), he wants to buy more with 150 candies.
 48

From demand schedule above, a demand curve will be constructed. (Fig.1)

C. DEMAND CURVE
 A graphical presentation showing
how much of a given good or products a household (HH) would be able to buy at different
prices.
 A curve showing the relationship of Qd and P. It is downward sloping due to
two significant causes namely:
a. the income effect
b. substitution effect
 The income effect increases the purchasing power of the consumer as a
result of a decrease in the P of community (Vivar, et al 2001).

 The substitution effect on the other hand is caused by a change in the

consumer’s taste and preference as a result of an increase in price. To add, when goods
become more expensive, consumers tend to find substitutes that are cheaper.

P
60
F
50
E
40 D
30
Price of Candies

C
20
B
10
0 A
Q
30 50 90 120 150 180
Quantity of Cake

Fig 1 Demand curve for Jan Mikhael’s Candies

Figure 1 entails the relationship of P and Q d. We have to observe the data of point B-
C. At pt B, price is 10 and Qd is 150, while in point C, the price increases by 10 resulting to
 48

the decrease of Qd to 120. In this example the negative relationship of Qd and P is

manifested.
As you noticed, both the demand schedule demand curve had the same data and
interpretation. The only difference was the presentation. The former presented the data in
the tabular form, while the latter in a graph.
Note: Fig 1 shows only the price (as the sole determinant of demand) and quantity
demanded of the households. The income and substitution effect are not included.

D. DETERMINANTS OF DEMAND

Did you ever wonder why your demand on goods and services differ with your
friends and classmates? Below is some of the interesting answers to your curiosity.

Table 2. DETERMINANTS OF DEMAND

Direction
Factors Affecting Demand of the Qd Relationship
Arrow
A. Price (P)   -
B. Non-Price Factors
1. income (Y) (Normal Goods)   +
2. wealth (W)   +
3. taste & preference (T)   +
4. population (p)   +
6. occasions (o)   +
7. Future price   +
(Exp)
8. Price of related products

a. Price of substitute goods   +

b. Price of complementary   -
good
 48

In table 2, the qd will change in two ways – price and the non- price factors. If the
change is influenced by price, there is no shift or change in the demand curve. The change is
just a movement along the curve.
In the non- price factors, the demand curve will either shift/change to the right or
left depending on the given scenario
and seasonal variables are sometimes interchanged. Occasions include wedding, fiesta,
baptismal and valentines day.

SHIFT VS MOVEMENT ALONG A DEMAND CURVE

 When income increases, the demand for

inferior goods shifts to the left and the demand for normal goods shifts to the right
(figure 1).
 Inferior goods – goods for which demand tends to fall when income rises.
 Normal goods – good for which demand goes up when income is higher and for
which demand goes down when income is lower.

A. Income Rises

P P
P per Kilo of beef
P per Kilo of Fish

D D1
D1 Q D Q
Kilo of Fish Kilo of beef
Fig 1.a demand for inferior Fig 1.b demand for normal good
good (fish) shifts to the left (beef) shifts to the right
 48

P P

10 10

S
S D1
D
Q of Coke
10 20
10 20 Q of Pepsi
fig. 2.a
fig. 2.b

10

S D1
D

10 20 Q of Straw
fig. 2.c

E. DEMAND FUNCTION

 It is a mathematical equation showing the relationship of the two

variables – Price, as independent, and Qd as dependent.
 Based on the demand schedule (table 1), the formula for demand
function (fn) is;
Qd = a - bP
Where:
a = intercept b = slope P= price
 48

Words to Remember :
 The relationship between P and Qd is negative, thus demand curve is downward
sloping.
 Changes in the P is a movement along the demand curve
 Changes in non-P factors shift the demand curve either left or right.
 In the non-price factors, when the demand curve shifts/changes to the right , the qd
will increase.
> The formula for demand function is Qd = a-bP

ACTIVITY 1 Definition of Terms ( 2 points each)

Define the following terms:

1. Demand
______________________________________________
2. Demand curve
______________________________________________
3. Demand schedule
_____________________________________________
 48

4. Demand function
______________________________________________
5. Quantity demanded
______________________________________________

Activity 2 Graph Analysis ( 3 pts each)

Graph the following situations.

1. P, Qd

2. population , Qd

3. price of coca cola , Show the Qd on pepsi

4. If income , what happen to qd? _

5. It’s Christmas time, graph the qd on Christmas _____________________

decors
 48

Activity 3
Demand Curve ( 20 points)
a. Draw a demand curve based on the data on the
demand schedule

Demand Schedule of Shayne on Lollipop

Pt P Qd
A 6 20
B 5 25
C 4 30
D 3 35
E 2 40
F 1 45

________________________________
Activity 4. ( 15 points)

 Analyze the table below. Based on the given direction of the arrow in each item,
fill up the Qd column by using  or and the column showing the Relationship of
Qd to determinants of demand with + or – signs.
 48

Direction
Factors Affecting Demand of the Qd Relationship
Arrow
A. Price (P)
B. Non-Price Factors
1. income (Y) 
2. taste & preference (T)
3. Price of related products

a. Price of substitute goods

b. Price of complementary 
good
4. Future price and income 
expectation (Expy)

5. seasonal variable 
6. population 

7. future price experctation

Activity 5. Sharing of Ideas ( 10 points each)

1. As a consumer, share your personal experience that make your qd increases or

decreases on buying goods and services (ex. your preferences in buying dress or

snacks, etc.).

2. Do you believe that quality equates with price? Expound your answer.
 48

3. Which of the determinants of demand that you learned from this module that

you always experienced as a consumer and why?

LESSON 5

Supply definition
The willingness and ability to produce a product or service at each
particular price.
1. willingness is less important for supply than demand
2. physical constraints limit ability
production costs
range of quantities and goods
a given time period

The quantity supplied is the amount supplied at a specific price. For example,
when the price of digital cameras is $50 two companies are willing to supply
cameras (two cameras are supplied). When the price rises to $500 ten
companies are willing to supplies cameras (ten cameras are supplied).

Law of Supply
As the price of a good increases, producers are willing to produce more of the
good.
Why does the law of supply work?
production costs
increasing opportunity costs

Supply Curve
1. Supply schedule
table illustrating the relationship between supply and quantity supplied
2. Supply curve
connected plotted points of a supply schedule
positive slope
embodies law of supply
represents the minimum price that sellers would be willing to accept
 48

Determinants
1. Supply determinants
1. the ceteris paribus factors
2. shift the supply curve
3. 5 determinants causing shifts
1. resource prices
a. higher costs cause increases in production cost and
cause a decrease in supply, or a leftward shift
b. lower input costs causes a decrease production cost
and an increase in supply; rightward shift
what are resources? Labor, materials, supplies, rent,
insurance

2. technology
a. advances in technology, increase in supply; rightward
shift
b. declines in technology, or a less productive use of
resources, causes a decrease in supply; leftward shift
3. price of other goods
a. substitute-in-production – an increase in the price of a
substitutable good, causes a decrease in supply of our
good; leftward shift.
b. compliment-in-production – an increase in the price of a
complement good, causes increase in supply of our good;
rightward shift
4. expectations of prices in the future
a. if producing companies think future prices for their
product are going to rise, they will decrease their
current supply and sell later
b. if producing companies think future price for their
product are going to fall they will increase their current
supply and try to sell as their product now while prices
are high
5. the number of sellers
a. more sellers of a good or service causes supply to
increase; rightward shift
c. less sellers of a good or service causes supply to
decrease; leftward shift

What is the difference between a change in supply and a change in the quantity
supplied
a. a change in supply occurs when one of the shift factors of supply
changes. This causes the entire supply curve to shift left or right.
b. a change in the quantity supplied occurs when the price of a good or
service changes. This causes a move along a supply curve.
Scarcity
1. when suppliers have limited resources
2. when the number of suppliers decreases

Price S
 48

quantity

Putting demand and supply together

Price

60

55

50
D
50 90 110 Quantity

When the price is 60, the quantity demanded is 50 and the quantity supplied is 110.
Obviously, there are more companies willing to supply the good at this price than
there are customers. The price is too high. Companies have excess inventory, or
what is known as a supply surplus (of 60 units. 110 - 50). So what should they do?
Lower their price.

If they lower their price to 50, the quantity supplied is 50 and the quantity demanded
is 110. In this case the price is too low, there are lines of people waiting for the
product. This is known as a supply shortage (of 60). So what should the company
do? Raise their price.

When the price is 55 the quantity demand and the quantity supplied are equal at 90.
This is known as equilibrium. The price will stay here until something changes. What
could change? Any of the shift factors discussed above.

In the market for computers, if consumer income increases, then the demand for
computers will increase. The equilibrium price will rise from $55 to $60 (prices
increase) and the equilibrium quantity will rise from 90 to 110 (quantity sold will
increase). This is an example of a single shift.

Price
 48

60

55

50 D’
D
50 90 110 Quantity

Single Shifts

When a market is in equilibrium there are only four shifts that could be made. Each of
these shifts will cause the equilibrium price and quantity to change. After the shift the
market will stay at its new equilibrium price and quantity until another shift factor
changes.

What are the shifts? Impact on price and quantity

Price Quantity
Demand shifts right increase increase
Demand shifts left decrease decrease
Supply shifts right decrease increase
Supply shifts left increase decrease

Double Shifts

There are times when both curves shift. When both curves shift at the same time
sometimes we can tell what will happen to prices and quantity and sometimes we
cannot tell.

Demand shifts left, and supply shifts left

When supply shifts left
demand shifts left prices fall Quantity falls
supply shifts left prices rise Quantity falls
overall impact price is uncertain ? Quantity falls

price is uncertain because arrows go in different directions, quantity falls because

both arrows go the same direction.

Demand shifts right, and supply shifts left

Demand right causes price to rise and quantity to rise,
Supply left causes price to rise and quantity to fall.
Overall prices rise and quantity is uncertain

An example would be advertising. Advertising should stimulate demand for the good
(causing demand to shift right) but advertising cost money (causing supply to shift
left)
 48

What would happen to price and quantity when demand shifts left, and supply shifts
right?

What would happen to price and quantity when demand shifts right, and supply shifts
right?

To be accurate we must know which curve shifts by a greater amount.

LESSON 6

MARKET EQUILIBRIUM

Introduction

What will happen if the quantity demanded (Qd) and quantity supplied (Qs)
meet? Can you figure out the effects to the demand and supply curves if some of the
determinants will change? How do you call a scenario when excess demand and
surplus occurs? These are some of the questions that toying out into your minds.

When the supply and demand curves intersect, the market is in equilibrium. 
This is an economic condition where Qd and Qs are equal with one price.  The “one
price” that we are referring here is the equilibrium price or market-clearing price.
With price equilibrium, the equilibrium quantity is achieved.

Figure 1. Market equilibrium

Based on fig. 1, the equilibrium price is 6 per unit, and equilibrium quantity is

20 units. At this price level, market is in equilibrium. Quantity supplied is equal to

quantity demanded

(Qs = Qd). Market is

clear.

Surplus and
shortage

Based on fig. 1,
what will happen if the
government changed
 48

the equilibrium price from 6 to 4? Will market equilibrium still occur? Basically, if the
market price is below the equilibrium price, Qs is lesser than Qd, creating a shortage.
We can also call this condition as excess demand.

Example: The consumers keep on complaining on a high price of noodles at 6. The

government lowers the price to 4. If the market price is below the equilibrium price,
quantity supplied is less than quantity demanded, creating a shortage. The market is
not clear. It is in shortage. Therefore, excess demand is observed with few goods
offered in the market.

On the other hand, what if the government changed the price to 8? Is it good
or bad? A price above the equilibrium price motivates the producers to produce more
but discouraged the consumers to buy (Law of supply and demand phenomena).
Thus, surplus occurs, which means Qs is greater than Qd.

The scenarios are illustrated in figure 2 below.

If a surplus exist, price must fall in order to entice additional quantity demanded and
reduce quantity supplied until the surplus is eliminated.  If a shortage exists, price
must rise in order to entice additional supply and reduce quantity demanded until the
shortage is eliminated.

Fig. 2. Equilibrium Price and Quantity

At
PRICE 4

Since  Qs>Qd, there are excess quantity

supplied  in the
market, the market is not clear. Market is
in surplus.
 48

THE PRICE WILL DROP BECAUSE OF THIS

SURPLUS.

At
PRICE
8
Since Qs<Qd, There are excess quanitty
demanded in the
market. Market is not clear. Market is in
shortage.

THE PRICE WILL RISE DUE TO THIS

SHORTAGE.
 

The scenarios presented are examples of government intervention in the

market. Government regulations will create surpluses and shortages in the market. 
When a price ceiling is set, there will be a shortage. When there is a price floor, there
will be a surplus.

Price ceiling or the price maximum is legally imposed maximum or the highest

price on the market. Transactions above this price set by the government are
prohibited. The policy makers set ceiling price below the market equilibrium price
which they believed is too high. The Intention of price ceiling is keeping stuff
affordable for poor people, however, price ceiling generates shortages on the
market. 

Price Floor or the price minimum, on the other hand, is legally

imposed minimum price or the lowest price on the market. Theoretically,
transactions below this price are prohibited. The policy makers set floor
price above the market equilibrium price which they believed is too low. Price floor is
mostly seen in the labor market and has an intention of giving more income for the
sellers. But ironically this action is deceiving. When applied to labor market, only few
workers are hired since a higher salary means additional cost to the producers.
However, more workers are available workers are willing to work because of the
attractive higher wage. Specifically, price floor generates surpluses on the market. A
classical example of price floor is the minimum wage.

What is the best solution to solve market disequibrium? Just leave the market
alone. Let the demand and supply forces take its pace with a little intervention from
the government. It is the now the free market economic systems.

Changes in equilibrium price and quantity

Equilibrium price and quantity are determined by the intersection of supply and
demand. Any change in supply, or demand, or both, will eventually 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.
(Authority)

A. Movement along the curve

 48

All changes due to price factor (ceteris paribus) are just movement along the curve.
Please observe figures 34 and below.

What if the price of apples increases? See fig 3. point E to point A.

P S

0 Q

Fig. 3 Price changes in Apples (demand side)

P S

Fig. 4 Change in price in oranges ( Supply side)

 48

Figures 3 and 4 illustrate the price factor. Basically, both conditions have no
market equilibrium.

B. Changes/shifts of the demand and supply curves

In the following figures 5 and 6, an example of determinant of demand is

illustrated. This is a concrete example of non-price factor.

In this graph, supply is constant, demand

increases. This scene is due to non-price
factor in demand (say, population,
income, Pex, etc). The new demand
curve (Demand 2) has shown shifting to
the right.

The new curve intersects the original

supply curve at a new point. At this point,
the equilibrium price (market price) is
higher, and equilibrium quantity is higher
also.

Fig. 4 showing the shift of demand curve 1

In this graph, the increased demand

curve and increased supply were
drawn together.  The new intersection
point is located on the right hand side
of the original intersection point.

This new equilibrium point indicated

an equilibrium quantity which is
higher than the original equilibrium
quantity. The equilibrium price is also
higher. It is because demand has
increased relatively more than supply
in this case.

This supply and demand factor exercises may help you better apply these
concepts. 
 48

Activity: Bloggers Corner

Suppose that you are a writer for the blog All Things
Chocolate and are writing a post that illustrates how
Demand/Supply/Market Equilibrium can be illustrated
by the market for chocolate candy bars. You want to
include some headlines from recent news stories. Find
actual news articles using chocolate to illustrate each of
the following concepts, or if none are available, create your own detailed
headlines. You MAY draw a graph to illustrate the changes in equilibrium.
1. Change in quantity demanded
2. Change in quantity supplied
3. Change in number of buyers of chocolate bars
4. Change in the price of related goods
5. Change in consumer expectations
6. Change in income of chocolate bar buyers
7. Change in technology
8. Change in input prices
9. Change in the number of sellers
10. Change in producer expectations.
 48

REFERENCES AND SUGGESTED READING MATERIALS:

Printed:

Case, K.E., Fair, R.C., & Oster, S. (2009). Principles of Economics (9th ed.). UK:
Pearson Education.

Cowel, F. (2006). Principles of Economics(4th ed.). New York:Oxford University

Press.

Fajardo and Manansala (2006) Money, credit, and Banking 4th Edition. National
Bookstore, Manila, Philippines.

Gregory, M.N. (2008). Principles of Economics 5th edtition. Southwestern College

Publications, Massachusetts, USA.

Mankiw, G.N. (2015) Principles of Economics.NewYork: Cengage Learning.

Marshall, A. (2010). Principles of Economics(2nd ed.). South Carolina: Nabu Press-

Bibliobazaar.

Online:

Asian Development Bank. (2020). Economic Indicators for the Philippines.

https://www.adb.org/countries/philippines/economy.

Chappelow, J. (2019). Economics: Overview, Types and Economic Indicators.

https://www.investopedia.com/terms/e/economics.asp.

Curtis, D. (2017). Principles of Microeconomics.

https://archive.org/details/2017PrinciplesOfMicroeconomics/page/n3/mode/2up.

Economic Concepts.com. Principles and Theories of Microeconomics.

http://www.economicsconcepts.com/principles_of_micro_economics.html.

Fetter, F. (2003). The Principles of Economics. New York The Century Co.
https://cdn.mises.org/The%20Principles%20of%20Economics
,%20With%20Applications%20to%20Practical%20Problems_5.pdf.

Hausman,R., Rodrik, D., & Velasco, A. (2004). Growth Diagnostics.

https://www.hks.harvard.edu/search? query=barcelona+oct+19
+Growth+Diagnostics&advanced=&fq=&page=1.

McKay, A. & Baulch, B. (2004). Chronic Poverty Report.

https://www.chronicpoverty.org/resources/cprc_report_2004-2005.contents.html.
 48

Pettinger, T. (2019). Microeconomics Models and Theories.

https://www.economicshelp.org/blog/499/economics/microeconomics-models-and-
theories/.

WallstreetMojo.Com. Principles of Microeconomics.

https://www.wallstreetmojo.com/microeconomics/.

ASSESSMENT TOOLS: ACTIVITY RUBRICS

Rubrics: Island Game

SCORING POINTS
SCORING ELEMENTS Competent (3) Near Competent Unable to exhibit
(2) Competence (1)
RECOGNIZES Economic Selects most or all Selects many Mostly or almost
concepts/theories/tools/ide relevant concepts relevant misses all relevant
as for application to a for solving a concepts for concepts/principl
task/question problem or solving a es necessary or
answering a problem but relevant for
question and misses some addressing an
shows thorough relevant points economic
awareness of to an economic situation
what situation
principles/concep
ts are relevant to
an economic
situation
APPLIES Economic Applies relevant Applies a few Unable to apply
concepts/theories/tools/ide concepts relevant relevant concepts
as to address a task or thoroughly and concepts thoroughly and
question correctly to thoroughly and correctly to
address or solve correctly to address or solve
an economic address or solve an economic
problem or an economic problem or
situation problem or situation
situation
INNOVATES – demonstrates Able to Able to Unable to
innovative and creative suggest/create suggest/create suggest/create
thinking with regard to an relevant novel or at least 1 any relevant novel
idea/concept/question unique relevant novel or or unique
ideas/concepts in unique idea/concept in
addressing an idea/concept in addressing an
economic addressing an economic
situation/problem economic situation/problem
situation/proble
m

Scoring: 7-9 Excellent; 6-7 Highly Satisfactory; 4-5 Satisfactory;

 48

1-3 Needs Improvement

Rubrics: VIDEO REVIEW PAPER

Video Review paper Grading Rubric: ECONOMICS

0.00 – 57.50 – 76.25 -
Undergraduate Percentage Scale: 57.49% 76.24% 93.74% 93.75 - 100%
Undergraduate Scaled Score: 0–5 6–7 8- 11 12- 15
% Below Approaching At Standard Exceeds
Standard Standard Standard
Clear explanation of key strategic 2 Shows little Shows some Shows Shows
issues 0 understandin understandin adequate superior
• The problems, scope, and % g of the g of the knowledge knowledge
seriousness was clearly identified in issues, key issues, key of the issues, of the issues,
the discussions. problems, problems, key key
• There was a well focused diagnosis and the and the problems, problems,
of strategic issues and key problems company’s company’s and the and the
that demonstrated a good grasp of present present company’s company’s
the company’s present situation situation and situation and present present
and strategic issues. strategic strategic situation and situation and
• Did not waste space summarizing issues. issues. strategic strategic
information already found in the Executive Executive issues. issues.
case. summary summary Executive Effective
missing or inadequate summary Executive
poorly adequate Summary
constructe
d
Valid arguments; analysis of financial 2 Critical issues Critical issues Critical issues Critical issues
performance with relevant 0 and key and key and key and key
supportive detail % problems problems problems problems
 Logically organized, key points, key that that that that
arguments, and important criteria supported supported supported supported
for evaluating business strategies the Case the Case the Case the Case
were easily identified Analysis Analysis Analysis Analysis
 Critical issues and key problems were poorly were not were were clearly
that supported the Case Analysis identified, clearly partially identified,
were identified and clearly analyzed analyzed, identified, identified, analyzed,
and supported. and analyzed, analyzed, and
supported. and and supported.
supported. supported.

Appropriate analysis, evaluation, 2 Analysis of Analysis of Analysis of Analysis of

synthesis for the specific industry 0 key change key change key change key change
identified % drivers and drivers and drivers and drivers and
 There was complete data on which the the the the
to base a thorough analysis underlying underlying underlying underlying
 Key change drivers underlying the the issues the issues the issues the issues
issues were identified. inadequate. were not were were clearly
 Synthesis, analysis, and evaluations identified. partially identified
were clearly presented and identified
supported in a literate and effective
manner.
Conclusions and recommendations 2 Effective Effective Effective Effective
are congruent with strategic analysis 0 recommenda recommenda recommenda recommenda
 48

 Specific recommendations and/or % tions and/or tions and/or tions and/or tions,
plans of action provided. plans of plans of plans of solutions,
 Specific data or facts were referred action not action action were and/or plans
to when necessary to support the provided. inadequate. partially of action
analysis and conclusions. Specific data Specific data provided. were
 Recommendations and conclusions or facts or facts were Specific data provided.
were presented and supported in a necessary to not referred or facts were Specific data
literate and effective manner. support the when occasionally or facts were
analysis and necessary to referred referred
conclusions support the when when
was not analysis and necessary to necessary to
provided. conclusions. support the support the
analysis and analysis and
conclusions. conclusions.
Proper organization, professional 2 Key points Key points Key points Key points
writing, and logical flow of analysis. 0 were poorly were not were were clearly
APA formatting % identified identified partially identified
 Logically organized, key points, key and and identified and
arguments, and important criteria supported supported and supported
for evaluating the business logic with a well with a well supported with a well
easily identified. thought out thought out with a well thought out
 Key points were supported with a rationale rationale thought out rationale
well thought out rationale based on based on based on rationale based on
applying specific concepts or applying applying based on applying
analytical frameworks to the data specific specific applying specific
provided in the case. concepts or concepts or specific concepts or
 Proper grammar, spelling, analytical analytical concepts or analytical
punctuation, 3rd person objective frameworks frameworks analytical frameworks
view, professional writing, and to the data to the data frameworks to the data
syntax. provided in provided in to the data provided in
the case. the case. provided in the case.
Grammar, Grammar, the case. Excellent
spelling, spelling, Adequate grammar,
punctuation, punctuation, grammar, spelling,
professional professional spelling, punctuation,
writing, and writing, and punctuation, professional
syntax needs syntax needs professional writing, and
significant improvemen writing, and syntax
improvemen t syntax
t
TOTAL Scaled Score: 0-29 – Failure (5.0) ; 30-35 – Passing (3.0); 36-40 – Better then Passing
(2.75); 41-45 – Less Satisfactory (2.50); 46-50 – Moderately Satisfactory
(2.25); 51-55 - Satisfactory (2.0); 56-60 – Highly satisfactory (1.75); 60-
65 – Very Highly satisfactory (1.50); 66-70 – Outstanding (1.25); 71-75 –
Excellent (1.0);

Rubrics: My PIZZARIA SHOP

My Pizzaria Shop paper Grading Rubric: ECONOMICS

0.00 – 57.50 – 76.25 -
Undergraduate Percentage Scale: 57.49% 76.24% 93.74% 93.75 - 100%
Undergraduate Scaled Score: 0–5 6–7 8- 11 12- 15
% Below Approaching At Standard Exceeds
Standard Standard Standard
Clear explanation of key strategic 2 Shows little Shows some Shows Shows
issues 0 understandin understandin adequate superior
• The problems, scope, and % g of the g of the knowledge knowledge
seriousness was clearly identified in issues, key issues, key of the issues, of the issues,
 48

the discussions. problems, problems, key key

• There was a well focused diagnosis and the and the problems, problems,
of strategic issues and key problems company’s company’s and the and the
that demonstrated a good grasp of present present company’s company’s
the company’s present situation situation and situation and present present
and strategic issues. strategic strategic situation and situation and
• Did not waste space summarizing issues. issues. strategic strategic
information already found in the Executive Executive issues. issues.
case. summary summary Executive Effective
missing or inadequate summary Executive
poorly adequate Summary
constructe
d
Valid arguments; analysis of financial 2 Critical issues Critical issues Critical issues Critical issues
performance with relevant 0 and key and key and key and key
supportive detail % problems problems problems problems
 Logically organized, key points, key that that that that
arguments, and important criteria supported supported supported supported
for evaluating business strategies the Case the Case the Case the Case
were easily identified Analysis Analysis Analysis Analysis
 Critical issues and key problems were poorly were not were were clearly
that supported the Case Analysis identified, clearly partially identified,
were identified and clearly analyzed analyzed, identified, identified, analyzed,
and supported. and analyzed, analyzed, and
supported. and and supported.
supported. supported.

Appropriate analysis, evaluation, 2 Analysis of Analysis of Analysis of Analysis of

synthesis for the specific industry 0 key change key change key change key change
identified % drivers and drivers and drivers and drivers and
 There was complete data on which the the the the
to base a thorough analysis underlying underlying underlying underlying
 Key change drivers underlying the the issues the issues the issues the issues
issues were identified. inadequate. were not were were clearly
 Synthesis, analysis, and evaluations identified. partially identified
were clearly presented and identified
supported in a literate and effective
manner.
Conclusions and recommendations 2 Effective Effective Effective Effective
are congruent with strategic analysis 0 recommenda recommenda recommenda recommenda
 Specific recommendations and/or % tions and/or tions and/or tions and/or tions,
plans of action provided. plans of plans of plans of solutions,
 Specific data or facts were referred action not action action were and/or plans
to when necessary to support the provided. inadequate. partially of action
analysis and conclusions. Specific data Specific data provided. were
 Recommendations and conclusions or facts or facts were Specific data provided.
were presented and supported in a necessary to not referred or facts were Specific data
literate and effective manner. support the when occasionally or facts were
analysis and necessary to referred referred
conclusions support the when when
was not analysis and necessary to necessary to
provided. conclusions. support the support the
analysis and analysis and
conclusions. conclusions.
Proper organization, professional 2 Key points Key points Key points Key points
writing, and logical flow of analysis. 0 were poorly were not were were clearly
APA formatting % identified identified partially identified
 Logically organized, key points, key and and identified and
arguments, and important criteria supported supported and supported
for evaluating the business logic with a well with a well supported with a well
easily identified. thought out thought out with a well thought out
 Key points were supported with a rationale rationale thought out rationale
 48

well thought out rationale based on based on based on rationale based on

applying specific concepts or applying applying based on applying
analytical frameworks to the data specific specific applying specific
provided in the case. concepts or concepts or specific concepts or
 Proper grammar, spelling, analytical analytical concepts or analytical
punctuation, 3rd person objective frameworks frameworks analytical frameworks
view, professional writing, and to the data to the data frameworks to the data
syntax. provided in provided in to the data provided in
the case. the case. provided in the case.
Grammar, Grammar, the case. Excellent
spelling, spelling, Adequate grammar,
punctuation, punctuation, grammar, spelling,
professional professional spelling, punctuation,
writing, and writing, and punctuation, professional
syntax needs syntax needs professional writing, and
significant improvemen writing, and syntax
improvemen t syntax
t

RUBRICS: BLOGGER’S CORNER

Points for
every If…
Statement
The student clearly understands how to solve the problem.
5 for Minor mistakes and careless errors can appear insofar as they
do not indicate a conceptual misunderstanding.[a]
The student understands the main concepts and problem-
4 solving techniques, but has some minor yet non-trivial gaps in
their reasoning.
The student has partially understood the problem. The student
is not completely lost, but requires tutoring in some of the
3
basic concepts. The student may have started out correctly,
but gone on a tangent or not finished the problem.
The student has a poor understanding of the problem. The
student may have gone in a not-entirely-wrong but
2
unproductive direction, or attempted to solve the problem
using pattern matching or by rote.
The student did not understand the problem. They may have
1 written some appropriate formulas or diagrams, but nothing
further. Or they may have done something entirely wrong.
0 The student wrote nothing or almost nothing.
48