IMPLICATIONS OF

MARKET PRICING
IN MAKING
ECONOMIC
Lesson Objectives:
a. determine the implications of market
pricing in making economic decisions;
b. explore the elasticity of demand and
supply; and
c. value the implications of market pricing in
decision making.
 Demand, Supply, and Elasticity of clean water
in the Philippines 8/27/2015
According to an article created by Vice News, there are 55 people who
die in the Philippines every day because of the lack of clean water. As
one can see clean water is greatly needed by all people. As a student
who is lucky to be given all the necessities needed in life it would be
normal not to think of this because we normally do not notice it.
However, we need to. According to Katrina Arianne Ebora, who works
for UNICEF's Water, Sanitation and Hygiene program in the Philippines
stated that "Over 30 million people in the Philippines do not have
access to improved sanitation facilities."
 Demand, Supply, and Elasticity of clean water
in the Philippines 8/27/2015
Also, according to the PIS by 2050 the population
of the areas with poverty in Manila will reach over
9 million! With the rising population of the
Philippines there will be a problem with the
economy of clean water because there will be too
much demand for the supply of water.
The Marketing Price
System
SHORTAGE
Is when there is an excess demand
for the quantity supplied.
SURPLUS
If producers make too many
goods but the consumers didn't
have the capacity to buy them,
then there is surplus of supply.
The Marketing Price
System
"purchasing power".
The willingness to buy
goods and services
accompanied by the
ability to buy
 EQUILIBRIUM CHARACTERISTICS

Equilibrium is a point of balance or a point The supply and demand are balanced in
of rest. It is also called "market-clearing equilibrium.
price".

Equilibrium price is the price at which the
producer can sell all the units he wants to
produce and the buyer can buy all the
units he wants
The economic forces are balanced and in
the absence of external influences, the
(equilibrium) values of economic variables
will not change.

The amount of goods of services sought

Quantity demanded and quantities
by buyers is equal to the amount of goods
supplied are equal. or services produced by sellers.
Equilibrium-Where
demand and
supply Intersect
 PRICES
 Prices of goods that we encounter everyday to the things we
buy plays a crucial role in determining an efficient
distribution of resources in a market system help us to make
every day economic decisions about our needs and desires.
 Indications of the acceptance of a product
 The more popular the product, the higher the price that can
be charged
 Decided by interactions between the producers and the
consumers
 PRICES
a signal for shortages and surpluses which help firms and
consumers respond to changing market conditions.
If a good is in shortage - price will tend to rise. Rising prices
discourage demand, and encourage firms to try and increase
supply.
"If a good is in surplus price will tend to fall. Falling price
encourage people to buy, and cause firms to try and cut back
on supply.
MARKET PRICE

The point that the

supply and demand
curves intersect.
(Judge, S. 2020
 PRICE ELASTICITY OF DEMAND AND
SUPPLY
Price elasticity
Measures the responsiveness of the quantity demanded
or supplied of a good to a change in its price

Elasticity can be described as:

a) elastic or very responsive and
b) unit elastic, or inelastic or not very responsive
Effects of Change in Demand and Supply

• Elastic demand or supply curve

Indicates that quantity demanded or supplied respond to price
changes in a greater than proportional manner.

• Inelastic demand or supply curve

One where a given percentage change in price will cause a
smaller percentage change in quantity demanded or supplied.
Effects of Change in Demand and
Supply

• Unitary elasticity.
Means that a given percentage changes in price leads
to an equal percentage change in quantity demanded
or supplied.
 CATEGORIES OF PRICE
ELASTICITY
1. THE PRICE ELASTICITY OF DEMAND
• Price elasticity of demand is the responsiveness
of quantity demanded.
• The mathematical value is negative.
• A negative value indicates an inverse relationship
between price and the quantity demanded.

Price Elasticity of Demand (PED)= %
change in quantity demanded % Change
in price
***Elastic Demand***
The percentage change in price brings
about a more than proportionate change in
quantity demanded.
***Inelastic Demand ***
When an increase in price causes a
smaller % fall in demand.
***Unitary Elastic Demand***
When the percentage change in demand
is equal to the percentage change in price,
the product is said to have Unitary Elastic
demand.
***Perfectly Elastic***
A small percentage change in price brings about a change in
quantity demanded from zero to infinity.

***Perfectly Inelastic ***

The Price Elasticity Demand is -0 any change in price will
not have any effect on the demand of the product.
 POINT ELASTICITY
a) The midpoint elasticity is less than 1. (Ed < 1). Price
reduction leads to reduction in the total revenue of the firm.

b) The demand curve is linear (straight line), it has a unitary

elasticity at the midpoint. The total revenue is maximum at
this point.

c) Any point above the midpoint has elasticity greater than 1,

(Ed > 1).
2. THE INCOME ELASTICITY OF DEMAND (YED)
"It is the relationship between changes in quantity
demanded for a good and a change in real income.
3. CROSS PRICE ELASTICITY OF DEMAND (XED)
The effect on the change in demand of one good as a result
of a change in price of related to another product.
4. PRICE ELASTICITY OF SUPPLY (PES)
The measure of the responsiveness of quantity to a change
in price. It is the percentage change in supply as compared
to the percentage change in price of a commodity. PES %
change in quantity Supplied % change in Price.
 Determinants of Price Elasticity of Supply

Agarwal, P. (2020) said, price elasticity of supply can be influenced by the

following factors:

1. Marginal Cost
 If the cost of producing one more unit keeps rising as output rises or
marginal cost rises rapidly with an increase in output, the rate of output
production will be limited.
 The Price Elasticity of Supply will be inelastic- the percentage of quantity
supplied changes less than the change in price.
 If Marginal Cost rises slowly, supply will be elastic.
2. Time
Over time price elasticity of supply tends to
become more elastic. The producers would
increase the quantity supplied by a larger
percentage than an increase in price.
3. Number of Firms
 The larger the number of firms, the more likely the
supply is elastic. The firms can jump in to fill in the void
in supply.

4. Mobility of Factors of Production

 If factors of production are movable, the price elasticity
of supply tends to be more elastic. The labor and other
inputs can be brought in from other location to increase
the capacity quickly.
5. Capacity
If firms have spare capacity, the price
elasticity of supply is elastic. The firm
can increase output without experiencing
an increase in costs, and quickly with a
change in price.
In terms of how responsive demand and
supply are, degrees of elasticity may either be:
1. ELASTIC – a change in a determinant will
lead to a proportionally GREATER change in
demand and supply. The absolute value of
coefficient of elasticity is greater 1. If the price
of LPG increase by 10% and as a result the
quantity demanded goes down by 12%, then
we say that the demand for LPG is elastic.
2. INELASTIC– a change in a determinant will
lead to a proportionally LESSER change in
demand and supply. The absolute value of
coefficient of elasticity is LESS THAN 1.
Suppose the price of cellphone goes up by 5%
and the quantity demanded goes down by 3%,
then we can say that demand for cellphone
load is inelastic.
3. UNITARY ELASTIC– a change in a
determinant will lead to a proportionally
EQUAL change in demand and supply. The
absolute value of coefficient of elasticity is
EQUAL TO 1. Let us say that the price of
string beans goes down by 6% and as a result
the quantity demanded goes up by 6%, we
describe the demand for string beans as
unitary elastic.
ELASTICITY OF DEMAND
These are types of elasticity of demand that
deal with responses to change in the price of
the good itself, in income , and in price of a
related good, which is a substitute or a
complement.
PRICE ELASTICITY OF DEMAND
This measures the responsive of demand to a
change in the price of the good. The concept
of elasticity is measured in percentage
changes. The value of price elasticity may be
measure in 2 ways:
1. ARC ELASTICITY
2. POINT ELASTICITY
1. ARC ELASTICITY
The value of elasticity is compute by choosing
two points on the demand curve and
comparing the percentage changes in the
quantity and the price on those two points.
2. POINT ELASTICITY
Measures the degree of elasticity on a single point
on the demand curve. It is important to the seller
since it gauges how far demand can change relative
to price. The price elasticity of demand measures
how far consumers willing to buy a good especially
when its price rises reflective of the economic,
social, and psychological forces shaping consumer
preferences.