Applied Economics
Quarter 1 – Module 2:
Application of Supply
and Demand
Applied Economics – Grade 12
Alternative Delivery Mode
Quarter 1 – Module 2: Application of Supply and Demand
First Edition, 2020
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Published by the Department of Education
Secretary: Leonor Magtolis Briones
Undersecretary: Diosdado M. San Antonio
Development Team of the Module
Writers: Grace N. Aloner
Editors: Grace N. Aloner and Angelina T. Almazan
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Layout Artist: Joe Angelo L. Basco
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Applied Economics
Quarter 1 – Module 2:
Application of Supply and
Demand
Introductory Message
For the facilitator:
Welcome to the Applied Economics 12 Alternative Delivery Mode (ADM) Module on
Application of Supply and Demand!
This module was collaboratively designed, developed and reviewed by educators
both from public and private institutions to assist you, the teacher or facilitator in
helping the learners meet the standards set by the K to 12 Curriculum while
overcoming their personal, social, and economic constraints in schooling.
This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration
their needs and circumstances.
In addition to the material in the main text, you will also see this box in the body of
the module:
Notes to the Teacher
This contains helpful tips or strategies that
will help you in guiding the learners.
As a facilitator you are expected to orient the learners on how to use this module.
You also need to keep track of the learners' progress while allowing them to
manage their own learning. Furthermore, you are expected to encourage and assist
the learners as they do the tasks included in the module.
ii
For the learner:
Welcome to the Applied Economics 12 Alternative Delivery Mode (ADM) Module on
Application of Supply and Demand!
The hand is one of the most symbolized part of the human body. It is often used to
depict skill, action and purpose. Through our hands we may learn, create and
accomplish. Hence, the hand in this learning resource signifies that you as a
learner is capable and empowered to successfully achieve the relevant
competencies and skills at your own pace and time. Your academic success lies in
your own hands!
This module was designed to provide you with fun and meaningful opportunities
for guided and independent learning at your own pace and time. You will be
enabled to process the contents of the learning resource while being an active
learner.
This module has the following parts and corresponding icons:
What I Need to Know
This will give you an idea of the skills or
competencies you are expected to learn in
the module.
What I Know
This part includes an activity that aims to
check what you already know about the
lesson to take. If you get all the answers
correct (100%), you may decide to skip this
module.
What’s In
This is a brief drill or review to help you link
the current lesson with the previous one.
What’s New
In this portion, the new lesson will be
introduced to you in various ways such as a
story, a song, a poem, a problem opener, an
activity or a situation.
What is It
This section provides a brief discussion of
the lesson. This aims to help you discover
and understand new concepts and skills.
What’s More
This comprises activities for independent
practice to solidify your understanding and
skills of the topic. You may check the
answers to the exercises using the Answer
Key at the end of the module.
What I Have Learned
This
includes
questions
or
blank
sentence/paragraph to be filled in to
process what you learned from the lesson.
What I Can Do
This section provides an activity which will
iii
help you transfer your new knowledge or
skill into real life situations or concerns.
Assessment
This is a task which aims to evaluate your
level of mastery in achieving the learning
competency.
Additional Activities
In this portion, another activity will be given
to you to enrich your knowledge or skill of
the lesson
learned. This also tends
retention of learned concepts.
Answer Key
This contains answers to all activities in the
module.
At the end of this module you will also find:
References
This is a list of all sources used in
developing this module.
The following are some reminders in using this module:
1. Use the module with care. Do not put unnecessary mark/s on any part of
the module. Use a separate sheet of paper in answering the exercises.
2. Don’t forget to answer What I Know before moving on to the other activities
included in the module.
3. Read the instruction carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking your
answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are through with it.
If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you are
not alone.
We hope that through this material, you will experience meaningful learning
and gain deep understanding of the relevant competencies. You can do it!
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What I Need to Know
This module was designed and written to provide an understanding of the law of
supply and demand, and factors affecting the economic situation. The model of
supply and demand is the economics profession’s greatest contribution to human
understanding because it explains the operation of the markets on which we
depend for nearly everything that we eat, drink or consume. The model is so
powerful and so widely used that to many people it is economics.
The module is divided into three topics, namely:
•
•
•
Demand
Supply
Market Equilibrium
Learning Competency:
•
Analyze market demand, market supply and market equilibrium.
After going through this module, you are expected to:
1. Describe demand and explain how it can change.
2. Describe supply and explain how it can change.
3. Relate how supply and demand interact to determine market equilibrium.
What I Know
4.
Look for the underlined word in each sentence. If the underlined word
makes the sentence correct write TRUE otherwise write FALSE. Write your
answer on a separate sheet of paper.
1. Demand is a schedule or curve that shows the various amounts of a
product that consumer will buy at each of a series of possible prices
during a specified period.
2. A superior good is a good or service whose consumption declines when
income rises, and rises when income decreases.
3. The vast majority of goods that are unrelated to one another are called
independent goods.
4. Law of demand is the inverse relationship between price and quantity
demanded.
5. An increase in the number of buyers in a market decreases the
product demand.
6. Complementary good is a good that can be used in place of some other
good.
7. Supply is a schedule or curve that shows the amounts of a product
that producers are willing to make available for sale at each of a series
of possible prices during a specific period.
8. The law of supply is the principle that, other things equal, as price
rises, the quantity supplied rises, and as a price falls, the quantity
supplied falls.
Higher resource prices raise production costs and, assuming a
particular product price, squeeze profits.
9. Shortage is the amount by which the quantity supplied of a product
exceeds the quantity demanded at a specific price.
10.
Businesses treat sales and property taxes as costs.
11.
If the government subsidizes the production of a good, it in
effect lowers the producers’ costs and decreases supply.
12.
Equilibrium price is the price in a competitive market at which
the quantity demanded and a quantity supplied of a product are
unequal.
13.
Price ceiling is the legally established maximum price for a
product.
14. Price floor is the legally established minimum or below-equilibrium
price for a product.
Lesson
1
Demand, Supply and
Market Equilibrium
To understand how a price cut will affect sales, we need to know how the
cut in price will affect the purchases of the individual buyers and generally, how an
individual’s purchases depend on the price of the item.
Supply in economics and finance is often, if not always, associated with
demand. While supply can refer to anything in demand that is sold in a competitive
marketplace, supply is most used to refer to goods, services, or labor.
With our understanding of demand and supply, we can now show how the
decisions of buyers interact with the decision of sellers to determine the price and
quantity of a certain product.
What’s In
Complete the semantic web with terms and concepts in
economics. You can modify the web and write as many as you
can, do it in a separate sheet of paper.
Economics
Notes to the Teacher
Important terms are highlighted, italicized or underlined for easy determination
of those terms that should be given more emphasis. You can cite your own
examples contextually.
Let them be reminded that writing of anything in this module is strictly
prohibited. Separate paper (preferably a notebook assigned for applied
economics subject) be used as answer sheet. The answer sheet pattern will be
provided for every activity. The learner should copy the activity and answer
sheet pattern in a separate paper/ answering notebook.
What’s New
Situation Analysis
You are planning to buy a new cellphone by next month. Copy the table in separate
paper then fill it up by different factors or reasons that will affect your decision
accordingly. Write as many as you can.
Factors/Reasons that affect your decision:
To buy
Not to buy
What is It
Demand
Demand
is a schedule or a curve that shows the various amounts of a
product that consumers will purchase at each of several possible prices during a
specified period of time.
Law of Demand
A fundamental characteristic is this: Other things equal, as price falls, the
quantity demanded rises, and as price rises, the quantity demanded falls. In short,
there is an inverse relationship between price and quantity demanded. Economists
call this inverse relationship the law of demand.
The Table 2.1.1 is a hypothetical demand schedule for a single consumer
purchasing a particular product, in this case, milk tea. The table reveals that if the
price of milk tea was Php90.00 each , Ranni would buy 2 milk tea per month; if it
was Php80.00, she would buy 3 milk tea per month; and so forth.
Table 2.1.1. Demand Schedule for Milk Tea
Ranni‘s Demand for Milk Tea
Price
Quantity Demanded per
Month
Php90.00
2
Php80.00
3
Php70.00
5
Php60.00
7
Php50.00
9
Php40.00
12
Php30.00
16
Php20.00
20
Php10.00
25
The Demand Curve
The inverse relationship between price and quantity demanded for any
product can be represented on a simple graph, in which by convention, we measure
quantity demanded on the horizontal axis and price on the vertical axis.
In Figure 2.1.1 we have plotted the price and quantity data points listed in
Table 2.1.1 and connected the points with a smooth curve. This is the demand
curve. Its downward slope reflects the law of demand: People buy more of a
product, service, or resource as its price falls. They buy less as its price rises.
Market Demand
So far, we have concentrated on just one consumer, Ranni. But competition
requires that more than one buyer be present in each market. By adding the
quantities demanded by all consumers at each of the various possible prices, we
can get from individual demand to market demand. If there are just three buyers in
the market (Ranni, Christine, and Czyrene), as represented by the Table 2.1.2 and
graph in Figure 2.1.2, it is relatively easy to determine the total quantity demanded
at each price. We simply sum the individual quantities demanded to obtain the
total quantity demanded at each price. Let’s simply suppose that the table and
curve show the amounts all the buyers in the market will purchase at each of the
prices.
Table 2.1.2 Market Demand for Milk Tea of Three Buyers
Quantity Demanded (per month)
Price per Milk
Tea (Php)
Ranni
Christine
Czyrene
90
80
70
60
50
40
30
20
10
2
3
5
7
9
12
16
20
25
1
2
4
6
8
10
13
16
20
3
5
8
10
12
15
18
23
28
Total
Quantity
Demanded
(per month)
6
10
17
23
29
37
47
59
73
Figure 2.1.2 Market Demand for Milk Tea of Three Buyers
=
Changes in Demand
A change in one or more of the determinants of demand will change the
underlying demand data(the demand schedule in the table 2.1.1) and therefore the
location of the demand curve in Figure 2.1.1. A change in the demand schedule or,
graphically, a shift in the demand curve is called a change in demand.
If consumers desire to buy more milk tea at each possible price, that
increase in demand is shown as a shift of the demand curve to the right.
Conversely, a decrease in demand occurs when consumers buy less milk tea at
each possible price and it shows a leftward shift of the demand curve.
Now let’s see how changes in each determinant affect demand.
• Tastes A favorable change in consumer tastes (preferences) for a product means
more of it will be demanded at each price. Demand will increase; the demand
curve will shift rightward. For example, a greater concern for health during the
period of pandemic has increased the demand for Vitamin C. An unfavorable
consumer preference will decrease demand, shifting the demand curve to the
left. For example, a recent popularity of Korean Dramas has reduced the demand
for local shows.
• Number of Buyers An increase in the number of buyers in a market increases
product demand. For example the rising number of students that wanted to
continue their college at state universities has increased the demand for
boarding/lodging house. In contrast, the transfers of students from one town to
another town have reduced the demand for school supplies, transportation and
other basic goods in those towns.
• Income The effect of changes in income on demand is more complex. For most
products, a rise in income increases demand. Consumers collectively buy more
airplane tickets and appliances as their income rise. Products whose demand
increases or decreases directly with changes in income are called superior goods
or normal goods.
Although most products are normal goods, there are a few exceptions. As
income rises beyond some point, the demand for slightly used cars and clothes
may decline. Higher incomes enable consumers to buy new clothing and cars.
Goods whose demand increases or decreases inversely with money income are
called inferior goods. (This is an economic term; we are not making personal
judgments on specific products.)
• Prices of Related Goods A change in the price of related goods may either
increase or decrease the demand for a product, depending on whether the
related good is a substitute or a complement:
A substitute good is one that can be used in place of another good.
A complementary good is one that used together with another good.
Pork and chicken are substitute goods, or, simply, substitutes. When two
products are substitutes, an increase in the price of one will increase the
demand for the other. For example, when the price of pork rises, consumers will
buy less pork and increase their demand for chicken, and vice versa.
Complementary goods or, simply, complements, are products that are used
together and thus are typically demanded jointly. Examples include computers
and software, cellular phone and cellular service and paint and roller/paint
brush. If the price of a complement (for example, paint) goes up, the demand for
the related good (paint brush) will decline. Conversely, if the price of a
complement (for example, cars) falls, the demand for related good (gasoline) will
increase.
The vast majority of goods that are unrelated to one another are called
independent goods. There is virtually no demand relationship between chalk and
bread. A change in the price of one will have virtually no effect on the demand
for the other.
• Expected Prices Changes in expected prices may shift demand. A newly formed
expectation of a higher price in the future may cause consumer to buy now in
order to “beat” the anticipated price rise, thus increasing current demand. For
example, when COVID 19 pandemic happened the use of alcohol is known as
one of the preventive measures, buyers may conclude that the price of alcohol
will rise. They may purchase large quantities now to stock up on alcohol. In
contrast, a newly formed expectation of falling prices may decrease current
demand for products.
Supply
Supply is a schedule or curve showing the amounts of a product that
producers will make available for sale at each of a series of possible prices during a
specific period. The table in Figure 2.2.1 is a hypothetical supply schedule for
HealTea, a single supplier of milk tea and incorporates the data in a curve called
supply curve. The schedule and curve show the quantities of milk tea that will be
supplied at various prices, other things equal.
Law of Supply
Figure 2.2.1 shows a positive or direct relationship that prevails between
price and quantity supplied. As price rises, the quantity supplied rises; as price
falls, the quantity supplied falls. This relationship is called the law of supply. A
supply schedule or curve reveals that, other things equal, firms will offer for sale
more of their product at a high price than at a low price.
Figure 2.2.1 HealTea’s Supply of Milk Tea
HealTea’s Supply of Milk Tea
Quantity
Price per Milk
Supplied per
tea
Month
90
85
80
75
70
60
60
50
50
40
40
30
30
20
20
10
10
5
Price is an obstacle from the standpoint of the consumer ( for example,
Ranni), who is on the paying end. The higher the price, the less the consumer will
buy. But the supplier (for example, HealTea) is on the receiving end of the product’s
price. To a supplier, price represents revenue, which is needed to cover costs and
earn a profit. Higher prices therefore create a profit incentive to produce and sell
more of a product. The higher the price, the greater this incentive and the greater
the quantity supplied.
Market Supply
Market supply is derived from individual supply in exactly the same way that
market demand is derived from individual demand (Figure2.1.2). We sum (not
shown) the quantities supplied by each producer at each price. That is, we obtain
the market supply curve by “horizontally adding” ( also not shown) the supply
curves of the individual producers. It is the same as those in market demand
graph. The only difference is that we change the label on the horizontal axis from
“quantity demanded” to “quantity supplied.”
Determinants of Supply
In constructing a supply curve, we assume that price is the most significant
influence on the quantity supplied of any product. But other factors ( the “other
things equal”) can and do affect supply. The supply curve is drawn on the
assumption that these other things are fixed and do not change. If one of them
does change, a change in supply will occur; meaning that the entire supply curve
will shift.
The basic determinants of supply are (1) resource prices, (2) technology, (3)
taxes and subsidies, (4) prices of other goods, (5) expected price, and (6) the
number of sellers in the market. A change in any one or more of these
determinants of supply, or supply shifters, will move the supply curve for a product
either right or left. A shift to the right signifies an increase in supply: Producers
supply larger quantities of the product at each possible price. A shift to the left
indicates decrease in supply: Producers offer less output at each price.
Changes in Supply
Let’s consider how changes in each of the determinants affect supply. The
key idea is that costs are a major factor underlying supply curves; anything that
affect cost (other than changes in output itself) usually shifts the supply curve.
• Resource Prices The prices of the resources used in the production process
help determine the costs of production incurred by firms. Higher resource prices
raise production costs and, assuming a particular product price, squeeze profits.
That reduction in profits reduces the incentive for firms to supply output at each
product price. For example, an increase in the prices of milk tea powder will
increase the cost of making milk tea and therefore reduce their supply. In
contrast, lower resource prices reduce production costs and increase profits, so
when resource prices fall, firms supply greater output at each product price.
• Technology Improvements in technology (techniques of production) enable
firms to produce units of output with fewer resources. Because resources are
costly, using fewer of them lowers production costs and increases supply.
Example: Technological advances in producing cellular phones have greatly
reduced their cost. Thus, manufacturers will now offer more such phones than
previously at the various prices; the supply of cellular phones has increased.
• Taxes and Subsidies Businesses treat sales and property taxes as costs.
Increases in those taxes will increase production costs and reduce supply. In
contrasts, subsidies are “taxes in reverse”. If the government subsidizes the
production of a good, it in effect lowers the producers’ cost and increases supply.
• Prices of Other Goods Firms that produce a particular product, say shoes, can
usually use their plant and equipment to produce alternative goods, say sandals
and slippers. The higher the prices of these “other goods” may entice shoes
producers to switch production to those other goods in order to increase profits.
This substitution in production results in a decline in the supply of shoes.
Alternatively, when sandals and slippers decline in price relative to the price of
shoes, firms will produce fewer of those products and more shoes, increasing the
supply of shoes.
• Expected Prices Changes in expectations about the future price of a product
may affect the producer’s current willingness to supply that product. It is
difficult, however, to generalize about how a new expectation of higher prices
affects the present supply of a product. Farmers anticipating a higher price of
rice grains in the future might withhold some of their current harvest from the
market, thereby causing a decrease in the current supply of rice grains. In
contrast, in many types of manufacturing industries, newly formed expectations
that price will increase may induce firms to add another shift of workers or to
expand their production of facilities, causing current supply to increase.
Number of Sellers Other things equal, the larger the number of suppliers, the
greater the market supply. As more firms enter an industry, the supply curve shifts
to the right. Conversely, the smaller the number of firms in the industry, the less
the market supply. This means that as firms leave an industry, the supply curve
shifts to the left. Example: The imposed restrictions on lockdown period during
COVID 19 pandemic stress, declined the market supply of almost every industry,
thus decrease the supply in the market.
Look at the picture below.
Supply
Demand
Motivating Questions: For a while, before you go on to the next topic, assess your
analysis through answering the following questions. Do it for your self.
1. What does the picture imply?
2. What will happen if the demand is more than the supply?
Market Equilibrium
When the supply and demand curves intersect, the market is in
equilibrium. This is where the quantity demanded and quantity supplied is
equal. The corresponding price is the equilibrium price or market-clearing price,
the quantity is the equilibrium quantity.
Equilibrium Price and Quantity
The equilibrium price (or market-clearing price) is the price at which the
intentions of buyers and sellers match. It is the price at which quantity demanded
equals quantity supplied. The table in in Figure 2.3.1 reveals that at Php35.00, and
only at that price, the number of milk tea that sellers wish to sell (43) is identical to
the number that consumers want to buy (also 43). At Php35.00 and 43 milk tea,
there is neither a shortage nor a surplus of milk tea. So 43 milk tea is the
equilibrium quantity: the quantity at which the intention of the buyers and
sellers match so that the quantity demanded and the quantity supplied are equal.
Graphically, the equilibrium price is indicated by the intersection of the
supply curve and the demand curve in in Figure 2,3,1. (The horizontal axis now
measures both quantity demanded and quantity supplied.) With neither a shortage
nor a surplus at Php35.00, the market is in equilibrium, meaning “in balance” or
“at rest”.
To better understand the uniqueness of the equilibrium price, let’s consider
other prices. At any above-equilibrium price, quantity supplied exceeds quantity
demanded. For example at the price of Php60.00, sellers will offer 70 milk tea but
buyers will purchase only 23. The Php60.00 price encourages sellers to offer lots of
milk tea but discourages many consumers from buying them. The result is a
surplus or excess supply of 47 milk tea. If milk tea sellers made them all, they
would find themselves with 47 unsold milk tea.
Surplus
Shortage
Surplus drives prices down. It is the amount by which the quantity supplied of a
product exceeds the quantity demanded at a specific (above-equilibrium) price.
Any price below the Php35.00 equilibrium price would create a shortage,
quantity demanded would exceed quantity supplied. Consider a Php20.00 price per
example. We see that quantity demanded exceeds quantity supplied at that price.
The result is shortage or excess demand of 45 milk tea. The 20 pesos price
discourages sellers from devoting resources to milk tea and encourages consumers
to desire more milk tea than are available. The 20 pesos price cannot persist as the
equilibrium price. Many consumers who want to buy milk tea at this price will not
obtain them. They will express a willingness to pay more than Php20.00 to get
them.
Government-set Prices
In most markets, prices are free to rise or fall with changes in supply or
demand, no matter how high or low those prices might be. However, government
occasionally concludes that changes in supply and demand have created prices
that are unfairly high to buyers or unfairly low to sellers. Government may the
place legal limits on how high or low a prices may go. Our previous analysis of
shortages and surpluses helps us evaluate the wisdom of government-set prices.
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 Floor is legally imposed minimum price on the market. Transaction
below this price is prohibited. Policy makers set floor price above the market
equilibrium price which they believed is too low. Price floors are most often placed
on markets for goods that are an important source of income for the sellers, such
as labor market. Price floor generates surpluses on the market. Example: minimum
wage.
Price Ceiling is legally imposed maximum price on the market. Transaction
above this price is prohibited. Policy makers set ceiling price below the market
equilibrium price which they believed is too high. Intention of price ceiling is
keeping stuff affordable for poor people. Price ceiling generates shortages on the
market. Example: Rent control.
What’s More
Activity 2.1 Understanding Factors that make Changes in
Demand
Identify the following whether the changes will shift the demand curve to left or
right.
Give at least three (3) examples for the following determinants that make changes
in demand then briefly explain the changes whether increase or decrease. The first
one is an example as your guide.
Determinants
Tastes
1. Tastes
2. Number of Buyers
3. Income
a. Superior Goods
b. Inferior Goods
4. Prices of Related
Goods
a. Substitute Goods
b. Complementary
Goods
5. Expected Prices
Product or
Scenario
COVID 19
Attack
Effect on
Demand
Increase
Decrease
Product Affected
Alcohol
Restaurant – Dine In
What I Have Learned
Activity 2.2 Banana Pie “What If”
If the price of a product increases, quantity demanded will decrease and quantity
supplied will increase. If the price of a product decreases, quantity demanded will
increase and quantity supplied will decrease. The forces of supply and demand
determine prices, which are measures of the relative scarcity of different products.
Analyze the following statement. Write the possible effect (Increase, Decrease, No
Change) in supply and price. Number one was answered as your guide.
1. Bananas were found to cure the COVID-19.
2. The weather was bad and not many bananas were produced.
3. People stopped buying banana pie and started buying more mango
pie.
4. Banana pie advertisements on television made more people buy
banana pie.
5. Foreign countries started importing banana pies at a cheaper price.
6. There was a shortage of sugar.
Statement No.
1
2
3
4
5
6
Effect in
Supply
Increase
Price
Increase
Activity 2.3 Calculating The Equilibrium Price:
It is clear from the above discussion that equilibrium point is the point wherein
quantity supplied equals quantity demanded. Thus, the formula in equation is:
Qs = Qd
The case scenario below will provide you with the ability to practice
calculating the equilibrium price of a given market.
You are a research associate in the Economics department at a large,
multinational bank. You have been assigned the task to study the relationship
between the supply and demand of the pork at market in Quezon. Although very
little research has been done to date on the market, your colleagues have
performed extensive interviews with various market participants and have
determined the following equations for supply and demand.
Variables:
•
•
•
Qs stands for quantity supplied
Qd stands for quantity demanded
P stands for price.
Equations:
Qs = 128 + 8P
Qd = 478 - 6P
Required:
1.
Calculate the equilibrium price for the pork market in Quezon by
using the supply and demand equations above. Show all necessary
steps to solve for P.
2. Do a quality check and put your answer back into the supply and demand
equations to see that it is correct.
What I Can Do
Activity 2.4
Assess the current situation, think of the needs accordingly. Analyze each need
whether attainable or not attainable; give explanation for your answer. The first one
is given as example to be your guide.
Ex. School
1.
2.
3.
4.
5.
School
Home
Barangay
Town
Country
Attainable
Needs
Explanation
School
Low cost and
Uniform
Locally produced
Not Attainable
Needs
Explanation
Air
Source of budget for
condition
the equipment and
room
maintenance
Assessment
Multiple Choice. Choose the letter of the best answer. Write the chosen letter on a
separate sheet of paper.
1. Law of demand states that, other things equal, when the price increases
a. quantity demanded decreases
b. quantity demanded increases
c. quantity demanded will increase or decrease
d. quantity demanded will not increase nor decrease
2. If consumers desire to buy more of a certain product at a possible price, that
increase in demand is shown as
a. a shift of demand curve to the right.
b. a shift of demand curve to the left.
c. a shift of demand curve upward.
d. a shift of demand curve downward.
3. Car and Pants are examples of
a. substitute goods
b. complementary goods
c. independent goods
d. superior goods
4. Superior good is also called as
a. normal goods
b. substitute goods
c. independent goods
d. complementary goods
5. To a supplier, it represents revenue that needed to cover costs and earn a
profit.
a. Demand
b. Supply
c. Price
d. Quantity
6. Improvements in technology enable firms to produce units of output
with fewer resources. Because resources is costly using fewer of them
will
a. lowers production costs and increase supply.
b. higher production costs and increase supply.
c. lowers production costs and decrease supply.
d. higher production costs and decrease supply.
7. To supplier, the lower the price, the greater the incentive and the
a. lesser the quantity supplied
b. greater the quantity supplied
c. same quantity supplied
d. none of the choices
8. Subsidies are “taxes in reverse”, because in effect it
a. increases the cost
c. increases the price
b. decreases the cost
d. decreases the price
9. If more businesses operate in a certain area, the supply curve will
a. shift to the left
c. shift to the left or right
b. shift to the right
d. do not shift to the left nor right
10. A change in supply means a change in the schedule and
a. a shift in the demand curve.
b. no change in the demand curve.
c. a shift of the supply curve.
d. no change in the supply curve.
11. The price in a competitive market at which the quantity demanded
and quantity supplied of a product are equal.
a. Related prices
c. Floor price
b. Equilibrium price
d. Ceiling price
12. Any price below the equilibrium price would create
a. surplus
c. lower price
b. constant price
d. shortage
13. Surpluses will drive
a. Prices up
b. Prices down
c. Prices unchanged
d. Prices up or down
14. It is most often placed on market for goods that are an important
source of income for the sellers.
a. Surplus
c. Price floor
b. Shortage
d. Price ceiling
15. Ceiling price is set below the market equilibrium price which is too
high. Intention of price is to
a. make the prices of goods higher.
b. make no changes in price of good.
c. make the prices of goods lower.
d. simply set prices of goods.
Additional Activities
Plot the following hypothetical market demand and supply schedules for Product X,
then find the equilibrium price and quantity.
Quantity Demanded
(Units)
150
300
400
600
800
1,000
Price (in Pesos)
30.00
25.00
20.00
15.00
10.00
5.00
Quantity Supplied
(Units)
800
700
600
500
300
100
1. A
2. A
3. C
4. A
5. C
6. A
7. B
8. B
9. B
10. C
11. D
12. D
13. B
14. C
15. C
What I Have Learned
Activity 2.2
Statement
No.
2
3
4
5
6
Decrease
Decrease
Increase
Decrease
Decrease
Decrease
Decrease
Increase
Decrease
Decrease
Price
Supply
Assessment
Some possible Answers:
Answers may vary
What’s In
What I Can Do
What I Know
1. Scarcity
2. Supply
3. Demand
4. Price
5. Equilibrium
6. Macroeconomics
7. Microeconomics
8. Goods
9. Production
10.Exchange
11.Consumption
12.Labor
13.Capital
14.Land
15.Entrepreneurs
What’s More
Answers may vary
What’s New
1. True
2. False
3. True
4. True
5. False
6. False
7. True
8. True
9. True
10.False
11.True
12.False
13.False
14.True
15.False
(Inferior)
(Increases)
(Substitute)
(Surplus)
(Increases)
(Equal)
(Above)
Answers may vary
Answer Key
What's More
Activity 2.3
Solution:
Requirement No. 1
We need to make the quantity supplied equal to the quantity demanded in
order to determine the equilibrium price.
Qs = Qd
128 + 8P= 478 - 6P
128 + 8P +6P= 478
8P +6P= 478 -128
14P = 478 -128
14P = 478 -128
14P=350
P = 350/14
P=Php25.00
At the price of Php25, the supply and demand curves will intersect.
Therefore the equilibrium price is Php25.00.
Requirement No. 2
Quality check:
128 + 8 (25) = 478 - 6 (25)
328 = 328 so the answer checks out.
Additional Activities
= 18
Equilibrium Quantity
= Php500.00
Equilibrium Price
References
“Calculating Equilibrium Price: Definition, Equation & Example”, accessed May
16,2020. https://study.com/academy/lesson/calculating-equilibrium-pricedefinition-equation-example.html
“Economics Online”, accessed May 17,2020,
https://www.economicsonline.co.uk/Definitions/Supply.html
Kenton, Will. “Supply,” 2019,
.https://www.investopedia.com/terms/s/supply.asp
Leaño, Rfull name. Applied Economics. Mindshapers Co. Inc. Manila, 2016.
McConnel, Flynn, Brue, Grant. Microeconomics. McGraw-Hill Companies,
Inc., 2012.
For inquiries or feedback, please write or call:
Department of Education – Region IV - CALABARZON - SDO QUEZON
Sitio Fori, Brgy. Talipan, Pagbilao, Quezon
Telefax: (042) 784-0366, (042) 784-0164, (042) 784-0391, (042) 784-0321
Email Address: quezon@deped.gov.ph
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