APPLIED ECONOMICS

2ND QUARTER

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I. Overview/Introduction
In the previous chapter we have investigated the various components of economics as social science
and have analyzed economic decisions from the perspective of benefits and costs. In this chapter the analysis
of supply and demand, which is a simplified version of the analysis of benefits and costs will be developed. A
popular mechanism of allocation called market system is based on the interaction of buyers and sellers of a
commodity to determine the price level of output of a good or service. Furthermore, this is a powerful tool shall
determine the the interactionsd of the buyer and sellers in any market, thus, these inetractions of the market
players are summarized in the analysis of demand and supply.

II. Learning Competencies

MELC: At the end of this module the student expected to
1. identify the law of supply and demand and the factors affecting it
2. compare the diffrent market structures of economics
3. calculate the prices of commodities and analyze the impact on consumers
Specific Objectives: The learners shall be able to;
1. apply the law of supply and demand, factors affecting and its market structures in the economic situation of
our society
2. discuss the effects of the comtemporary issues of the modern Filipino entreprenuers

III. Activities
Activity 1 Use the information in the table below to answer the following questions: (3 pts. each)
Price Quantity Demanded Quantity Supplied
10 1000 0
20 800 200
30 600 600
40 400 1000
50 200 1400
a) What is the market equilibrium price in this case?

b) What would happen in this market if the price were set to 40?

c) What would happen in this market if the price were set to 20?

Activity 2 Use the information in the table below to answer the following questions: (3 pts. each)

a. What is the equilibrium price in this market?

b. What would happen in this market if a price floor were set at 4?

c. What would happen in this market if a price ceiling were introduced at 2?

Activity 3 Fill in the right statement in the given box below. (2 pts. each)

1. 2.

3. 4.

5. 6.

7. 8.

9. 10.

11. 12.

13. 14. 15.

Activity 4 Study carefully the following graphs and anwer the questions according to the application of law of
demand and supply analysis. (2 pts. each)
GRAPH A.

a. The movement from point A to point B on the graph shows

b. The movement from point B to point A on the graph shows

GRAPH B.

a. The movement from S to S1 could be caused by

b. The movement from S1 to S could be caused by

GRAPH C.

a. If price is $15, quantity supplied would be ______________________ .

b. At a price of $20 the market would be ______________________ .
c. In this market, equilibrium price and quantity would be ______________________ .

V. Summary
We have seen the usefulness of a very simple economic framework of demand supply analysis. This
framework which is a derived from the cost-benefits framework were developed in the previous chapter has
numerous applications in understanding the contemporary business, economics and social issues. In addition,
various issues confronting the Filipino entrepreneur were discussed including the competion among firms for
market power, the costs of factor inputs and the role of governmentin the business. These issues can define
the sucessof a commercial enterprise.
Concepts:
Market- a place or service that allows buyers and sellers to exchange goods and services
Demand- the quantity of a good or service that consumers are willing and able to buy at a given
price during a specific period of time
Law of demand- as the price of a good decreases, people buy more
Supply- the quantity of a good or service that producers are willing and able to offer at each
possible price during a specific period of time
Law of supply- as the price of a good increases, producers will offer more
Scarcity- there is not enough of that item to satisfy everyone who wants it
Equilibrium- the point at which the quantity demanded equals the quantity supplied at a particular
price

VI. Summative Assessement

TEST I. Multiple Choice. Read each question then write the letter of the correct answer on the space provided
before each number.
____ 1. Which of the following would NOT be a determinant of demand?
a. the price of related goods
b. income
c. tastes
d. the prices of the inputs used to produce the good
____ 2. If the price of a substitute to good X increases, then
a. the demand for good X will increase.
b. the market price of good X will decrease.
c. the demand for good X will decrease.
d. the demand for good X will not change.
____ 3. Suppose you like banana cream pie made with vanilla pudding. Assuming all other things are constant,
you notice that the price of bananas is higher. How would your demand for vanilla pudding be affected by this?
a. It would decrease.
b. It would increase.
c. It would be unaffected.
d. There is insufficient information given to answer the question.
____ 4. A higher price for batteries would tend to
a. increase the demand for flashlights.
b. decrease the demand for electricity.
c. increase the demand for electricity.
d. increase the demand for batteries.
____ 5. What will happen in the rice market if buyers are expecting higher prices in the near future?
a. The demand for rice will increase.
b. The demand for rice will decrease.
c. The demand for rice will be unaffected.
d. The supply of rice will increase.
____ 6. Holding all else constant, a higher price for ski lift tickets would be expected to
 a. increase the number of skiers.
b. decrease demand for skis.
c. decrease the demand for other winter recreational activities.
d. decrease the supply of ski resorts.
____ 7. Ceteris paribus is a Latin phrase that literally means
a. "other things being equal."
b. "after this therefore because of this."
c. "to respond slowly to a change in price."
d. "There's no such thing as a free lunch."
____ 8. When the price of a good or service changes,
a. there is a movement along a stable demand curve.
b. demand shifts in the opposite direction.
c. demand shifts in the same direction.
d. supply shifts in the opposite direction.
____ 9. Other things equal, when the price of a good rises, the quantity supplied of the good also rises. This is
a. the law of increasing costs.
b. the law of diminishing returns.
c. the law of supply.
d. the law of demand.
____ 10. Suppose that there is an increase in input prices. We would expect
a. supply to increase.
b. supply to decrease.
c. supply could increase or decrease.
d. supply to remain unchanged.
____ 11.When the price is higher than the equilibrium price is _____.
a. a shortage will exist.
b. buyers desire to purchase more than is produced.
c. sellers desire to produce and sell more than buyers wish to purchase.
d. quantity demanded equals quantity supplied.
____12. When there is a shortage in a market _____.
a. there is downward pressure on price
b. there is upward pressure on price
c. the market could still be in equilibrium
d. the price must be above equilibrium
____13. Suppose that a decrease in the price of X results in less of good Y sold. This would mean that X and
Y are _____.
a. complementary goods
b. substitute goods
c. unrelated goods
d. normal goods
____14. Which of the following is a determinant of demand?
a. the price of a substitute good
b. the price of a complement good
c. the price of the good next month
d. all of the above
____15. When we move up or down a given demand curve.
a. only price is held constant
b. all nonprice determinants of demand are assumed to be constant
c. income and the price of the good are held constant
d. all determinants of quantity demanded are held constant
____16. Which of the following would NOT shift the demand curve for a good or service?
a. a change in income
b. a change in the price of a related good
c. a change in expectations about the price of the good or service
d. a change in the price of the good or service
____17. The downward-sloping demand curve reflects which of the following?
a. The price is positively related to quantity supplied.
b. There is an inverse relationship between price and quantity demanded.
c. There is a direct relationship between price and quantity demanded.
d. When the price falls, buyers willingly buy less.
____18. Holding the nonprice determinants of supply constant is _____.
a change in price would a. result in a change in supply
b. result in a movement along a stable supply curve
c. result in a shift of demand
d. have no effect on the quantity supplied
____ 19. Wheat is the main input in the production of flour. If the price of wheat increases, all else equal, we
would expect
a. the supply of flour to be unaffected
 b. the supply of flour to decrease
c. the supply of flour to increase
d. the demand for flour to decrease.
____ 20. Suppose that the number of buyers in a market increases and a technological advancement occurs
also. What would we expect to happen in the market?
a. The equilibrium price would increase, but the impact on the amount sold in the market would be
indeterminate.
b. The equilibrium price would decrease, but the impact on the amount sold in the market would be
indeterminate.
c. Both equilibrium price and equilibrium quantity would increase.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be indeterminate.

TEST II. True or False. Read each statement carefully. Write TRUE if the statement is correct otherwise,
write FALSE if the statement is incorrect on the space provided before each number.
_________1. The cost of production is a major determinant of consumer demand.
_________2. Managerial economics is primarily concerned with the market demand for an individual firm's
output.
_________3. The quantity of a commodity demanded by a consumer is influenced by the price of the
commodity.
_________4. The demand for an individual firm's output depends on the demand for the industry's output, the
number of firms in the industry, and the structure of the industry.
_________5. The quantity of a commodity demanded by a consumer is influenced by the number of
consumers in the market.
_________6. The quantity of a commodity demanded by a consumer is influenced by the prices of related
commodities.
_________7. The law of demand refers to the relationship between consumer income and the quantity of a
commodity demanded per time period.
_________8. An increase in price of a commodity will generally lead to a decrease in the quantity of the
commodity demanded per time period.
_________9. A commodity is referred to as normal if an increase in its price leads to an increase in the
quantity of the commodity demanded per time period.
_________10. Inferior goods are generally purchased at low levels of income but not at high levels of income.
_________11. Monopoly refers to a situation in which there is only one producer of a commodity for which
there are many close substitutes.
_________12. Oligopoly refers to a type of market organization that is characterized by large number of firms
selling a differentiated commodity.
_________13. Monopolistic competition is a form of market organization that combines elements of perfect
competition and monopoly.
_________14. If consumers expect the price of a commodity to increase in the future, then demand for the
commodity will decrease.
_________15. A shift in demand is referred to as a change in quantity demanded.

VII. References

Applied Economics For a Progressive Philippines by TERESO S. TULLAO JR. PhD

https://global.oup.com/us/companion.websites/9780199811786/

http://alyssaattwood.blogspot.com/2012/11/comparing-market-structures.html

https://ungerecon.weebly.com/uploads/2/0/8/8/2088048/supplydemand_equilibrium_test_questions.pdf