Senior High School

Senior High School

Quarter 1 - Module 1:
Economics and the Real World

Department of Education ● Republic of the Philippines

Applied Economics - Senior High School
Alternative Delivery Mode
First Edition, 2020

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 Senior High School

Applied Economics
Quarter 1 - Module 1:
Economics and the Real World

This instructional material was collaboratively developed and reviewed by educators

from public and private schools, colleges, and or/universities. We encourage teachers
and other education stakeholders to email their feedback, comments, and
recommendations to the Department of Education at action@ deped.gov.ph.

We value your feedback and recommendations.

Department of Education ● Republic of the Philippines

Introductory Message

Dear Teachers and Learners! The school welcome you all to this Applied
Economics Module. This material tries to bring you to the basic principles of applied
economics, and its application to contemporary economic issues facing the Filipino
entrepreneur such as prices of commodities, minimum wage, rent, and taxes. It also
covers an analysis of industries for identification of potential business opportunities.
The main output of the course is the preparation of a socioeconomic impact study of
a business venture.
As your partner in learning, we hope that you will not miss out every detail
included in this learning resource. Do enjoy it as there are challenging and interesting
activities inside this learning module. Congratulations in advance for this will make you
the master of your own learning.
Ops! you wait for a while, for an easy use of this material take note of some few
reminders
1. Take your time to read every detail that this module contains.
2. This material contains Module 1 and Module 2 and each of which is
provided with activities/tests that will surely lead you to learn.
3. Please do follow the directions given per activity so your experience to the
use of this material will be meaningful and fruitful.
4. Answer all the tests in this material. Answer keys are provided for all the
tests made and can be found at the last page for every module. Make sure
to do the activity first before checking your answers against the answer
key so that your work is fulfilling and learning will take place.
6. As a courtesy to the future users, PLEASE DO NOT WRITE ANYTHING
ON ANY PART OF THIS MODULE. Write your answer/s on a separate sheet of
paper, notebook, workbook or whichever is specified by your facilitator

Special Reminders for you learners;

1. Answer every activity intelligently and diligently.
2. Write your answer as directed by your facilitator.
3. Feel free to approach or communicate with your teacher/facilitator whenever
you need help.
4. Check your own answer as the answer keys are prepared at the end of every
module.
5. Don’t forget to put a smiley face if you finish the activity within the allotted time.
Here are the Icons used as your guide in every part of the lesson.
Icons of this Module

What I Need to This part contains learning

objectives that are set for you to
Know learn as you go along the module.
This is an assessment as to your
level of knowledge to the subject
What I know
matter at hand, meant specifically to
gauge prior related knowledge.
This part connects the previous
What’s In lesson with that of the current one.

This is an introduction of the new

What’s New lesson through various activities
before it will be presented to you
This is a discussion of the activities
What is It as a way to deepen your discovery
and understanding of the concept.
This is a follow-up activity that is
What’s More intended for you to practice further in
order to master the competencies.
What I Have This activity is designed to process
what you have learned from the
Learned lesson
What I can do This is a task that is designed to
showcase your skills and knowledge
gained, and applied into real-life
concerns and situations.
 Table of Contents

Page
What This Module is About……………………………………..
Icons of this Module……………………………………………..

MODULE I Economics and the Real World

What I Know……………………………………. 3
Lesson 1:
Introduction to Applied Economics……….. 5
Activity
1.1.1 Think and Write…………………………………. 6

Lesson 1.1
Economics as a Social Science and Applied Science... 7

Activity
1.1.2 Word Search…………………………………… 12
1.1.3 Check Your Understanding…………………... 13
1.1.4 Making It Count!……………………………….. 13

Lesson 1.2
Basic Economic Problems and the
Philippine Socioeconomic Development
in the 21st Century……………………………… 14
Activity
1.1.5 Making It Count!……………………………… 16
1.1.6 Think and Reflect……………………………… 16
1.1.7 I Can Do This!………………………………… 17
1.1.8 Drawing Out the Artist in You!………………. 17

Summative Test………………………………………………. 18

Lesson 2:
Utilizing Applied Economics ……………………… 20

Lesson 2.1
Application of Demand and Supply………. 20
Activity
1.2.1 Picture Analysis………………………………… 21
1.2.2 Show Me The Plot 1…………………………… 27
 1.2.3 Sum Me UP…………………………………….. 28

Lesson 2.2
Demand and Supply in Relation to
the Prices of Basic Commodities…………… 28
Activity
1.2.4 Show Me The Plot 2…………………………….. 29
1.2.5 Find My Match…………………………………… 34
1.2.6 Show Me The Plot 3……………………………. 35
1.2.7 Sum Me UP……………………………………… 35

Lesson 2.3
Market Structures……………………………… 35
Activity
1.2.8 Picture Analysis…………………………………. 36
1.2.9 Word Finder…………………………………….. 40
1.2.10 Sum Me UP………………………………… 41
1.2.11 I Can Do This!……………………………………… 41

Lesson 2.4
Contemporary Economic Issues
Facing the Filipino Entrepreneur…………… 41
Activity
1.2.12 Guess What?………………………………… 42
1.2.13 Check Your Understanding………………… 48
1.2.14 Sum Me UP………………………………… 48
1.2.15 Data Connection…………………………… 48
1.2.16 Making It Count!…………………………… 49

Summative Test………………………………………………… 50

Assessment (Post-Test) ………………………………………. 51

First Quarter Exam……………………………………………. 53
Answer Key…………………………………………………….. 56
References……………………………………………………… 61

2
 Module 1
Economics and the Real World

What I Need To Know

Hello, dear Learner! How are you today? Before reading this module,
what comes into your mind when you hear the word economics? Or have you
wondered how you can use economics in your chosen career? Do you ever
wonder if economic principles can be practically applied in real life?
Many individuals have no clear understanding of what economics is. They
don’t even know how it works and how it affects their lives. Actually, every
individual cannot isolate himself from economics. This is brought about by the
mere fact that his physical existence in this world depends upon economics.
People cannot live without production and consumption. Almost, always,
human activities involve economics. For instance, earning money, buying
goods and services, depositing and withdrawing money in the bank, these are
all economic activities.
This module will guide you how to make a living; how to use your money
wisely; how to run a business; how to properly consume and allocate the
available scarce resources; and how to maximize your profits and consumer’s
satisfaction, among other things. With appropriate economic decision-making
and plan implementation, life for everyone is most likely better.
Specifically, this module covers the following lessons:
a. Lesson 1: Introduction to Applied Economics, and
b. Lesson 2: Utilizing Applied Economics.
Also, in this module you are expected to do the following tasks:
1. Define basic terms in applied economics (ABM_AE12-Ia-d-1);
2. Identify the basic economic problems of the country (ABM_AE12-Ia-d-
2);
3. Explain how applied economics can be used to solve economic
problems (ABM_AE12-Ia-d-3);
4. Explain the law of supply and demand, and how equilibrium price and
quantity are determined (ABM_AE12-Ie-h-4);

3
 5. Discuss and explain factors affecting demand and supply (ABM_AE12
Ie-h-5);
6. Compare the prices of commodities and analyze the impact on
consumers (ABM_AE12-Ie-h-6);
7. Explain market structures (perfect competition, monopoly, oligopoly,
and monopolistic competition (ABM_AE12-Ie-h-7);
8. Analyze the effects of contemporary issues such as migration,
fluctuations in the exchange rate, oil price increases, unemployment,
peace and order, etc. on the purchasing power of the people
(ABM_AE12-Ie-h-8).
Finally, pre-test and post-test are given here to measure your mastery of
learning.

What I Know
Pre-test
Directions. Read the test items carefully and encircle the letter of your
choice that best answers the statement.
1. There is scarcity of resources because:
A. Man’s wants are unlimited C. Man’s wants are enough
B. Man’s wants are limited D. Man’s wants are satisfied
2. An economic resource that includes the natural resources:
A. Land C. Capital
B. Labor D. Entrepreneur
3. Economics is a social science because it deals with:
A. Human nature C. Experimentation
B. Natural resources D. Plants and animals
4. Another term used for equilibrium:
A. Stable C. Balance
B. Static D. None of the above

4
5. It is a finished product which is used to produce other goods:
A. Land C. Capital
B. Labor D. Entrepreneur
6. It reflects the desire of the consumer for a commodity:
A. Demand C. Market
B. Supply D. Supply schedule
7. In a market equilibrium, a higher price will result to:
A. Shortage C. Constant supply
B. Surplus D. Constant demand
8. Which of the following is true?
A. The supplies of inputs used affect the supply of a good.
B. The lower the price of the good, the smaller the quantity that will be
offered by the supplier.
C. The lower the price of the good, the bigger the quantity that will be
demanded by the buyer.
D. All the above are true.
9. The economic problems are answered predominantly through the price
mechanism and modified through government intervention:
A. Traditional system C. Market system
B. Command system D. Mixed system
10. The economic problem that refers to the nature of goods and services the
economy should produce:
A. What to produce C. How much to produce
B. How to produce D. For whom to produce
11. The market equilibrium for a commodity is determined by:
A. The market demand for the commodity
B. The market supply of the commodity
C. The balancing forces of the demand and supply of the commodity
D. The imbalance curve of the equilibrium

5
12. If the cost of production of pork increases, supply will:
A. Increase C. remain constant
B. Decrease D. It depends
13. The following statements are correct except:
A. Authority to tax is inherent to every state.
B. Taxes are compulsory contributions to support the state.
C. Overseas workers cannot be taxed for his income earned in abroad.
D. Taxation regulates the flow of income in an economic system.
14. A market structure that implies an ideal situation for the buyers and sellers.
A. Perfect competition C. Monopolistic competition
B. Monopoly D. Oligopoly
15. The biggest source of government funds:
A. Taxes C. Permits
B. Fines D. Revenues

6
 Less
1
on
Introduction to Applied Economics

What’s In
Economics is a broad ranging discipline that uses a variety of techniques
and approaches to address important social questions. Because of the great
complexity of human behavior, economists are forced to abstract from many
details, to make generalizations that they know are not quite true and to
organize what knowledge they have in terms of some theoretical structure in
our economy.
Furthermore, economics is important in understanding basic problems
such as those faced by individual citizens, families, or nations. It also helps
governments in promoting growth and improvements of the quality of lives
and analyzing remarkable patterns of social behavior. Because economic
questions enter into both daily life and national issues, a basic understanding
of economics is vital for sound decision-making by individuals and nation.
Now, in this lesson, you will get to understand economics as an applied
science and its utility in addressing the economic problems of the country.

What’s New

To achieve the objectives of this module, you must remember to do the

following:
✓ Read the lessons carefully.
✓ Follow all directions and instructions.
✓ Answer all given tests and activities.
✓ Learn to familiarize the following terms:

7
 To better comprehend the basic or technical principles and fundamentals
in the study of economics, it is essential to particularly familiarize the following
terms and their corresponding definitions as used in this study.

TERM DEFINITION
Applied economics The application of economic theory and
econometrics in specific settings with the goal
of analyzing potential outcomes.
Demand schedule Reflects the quantities of goods and services
demanded at different prices.
Economics Social science which deals with the allocation
of scarce resources to satisfy the unlimited
human wants.
Economic resources Also known as factors of production, are the
resources used to produce goods and
services.
Economic system The framework in which a society decides on
its economic problems
Equilibrium price Condition of balance or equality
Law of Demand The quantity of a commodity which buyers will
buy at a given time and place will vary
inversely with the price.
Law of Supply The quantity offered for sale will vary directly
with prices.
Macroeconomics The branch of Economics that studies the
economy as a whole, also known as National
Income Analysis
Market Is a place where buyers and sellers interact
with each other and that exchange takes place
among them.
Microeconomics The branch of Economics that deals with parts
of the economy such as the household and the
business firm. It is also known as Price Theory.
Monopolistic competition Imperfectly competitive market wherein
products are differentiated and entry and exit
are easy.
Monopoly When a single firm that sells in that market has
no close substitutes.
Oligopoly Market dominated by a small number of
strategically interacting firms.
Perfect competition Implies an ideal situation for the buyers and
sellers.
Scarcity Is a condition where there are insufficient
resources to satisfy all the needs and wants of
a population.
Supply schedule Shows the different quantities that are offered
for sale at various prices.

8
Activity 1.1.1 Think and Write
Please recall any Economic Terms you encounter or learn from your previous
studies or personal knowledge in the past? Please write some of those below
before you answer the questions that follow.

1.___________________
2.____________________
3.___________________
4. ___________________
5. ___________________

1. Where do you usually apply those terms in your daily life?

______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

1. In Philippine economy, what is the significance of those terms?

______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

What Is It

You might ask, “why do we need to study economics?” Well, to know how
important, the subject is, all you need to do is read the front page of newspapers
to realize that the most important news are economic in nature. Watch the news
on TV, and for sure, important news always presents economic issues.

9
 Hence, dealing with the study of economics is interesting since the issues
to be tackled and resolved in this subject, affect us all. After all, media
commentators, politicians, and even barbers and taxi driver knowingly or
unknowingly talk about economic issues. They all need to understand how to
make more rational decisions in spending money, saving part of it, and even
investing some of it.
On the national level, economics will enable you to take a look on how
the economy operates and how effective are government officials and policy
makers in trying to shape up the economy and formulate policies for the good
of the nation.

Lesson 1.1 Economics as a Social and Applied Science

Economics is a social science which deals with the proper allocation of
scarce resources to satisfy the unlimited human wants. Economics is classified
as a social science because it deals with the study of man’s life and how he
lives with other men.
Obviously, economics is interdependent with other sciences like
sociology, political science, geography, religion and other social sciences. As a
social science, economics studies how individuals make choices in allocating
scarce resources to satisfy their unlimited wants.
Scarcity is the reason why people have to practice economics. Part of
human behavior is the tendency of man to want and to have as many goods
and services as he can. Scarcity is that fact of life which makes man’s material
wants never fully satisfied because the resources he has are limited while his
wants are almost unlimited. However, his ability to buy goods and services is
limited by his income and purchasing power. It is therefore in this context that
man has to practice economics.
From the resources point of view, some would define economics as the
study of the efficient allocation of scarce resources. Since resources are
generally scarce while human wants tend to be unlimited, economics
encounters not a few problems. The root problem, which is the real problem, is
the unjust distribution of productive resources among the members of the
society. The fundamental problem of unfair allocation of resources has been a
global problem. There are extremely very few rich while there are very many
poor.
Thus, in a broad sense, economics can be defined as a social science
that studies and seeks to allocate scarce human and non-human resources
among their alternative uses in order to satisfy unlimited human wants and
desires.

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The Economic Resources
Our economic resources are also known as factors of production or
inputs. There are five major factors of production, which are utilized in our
economy. These are land, labor, capital, entrepreneur, and foreign exchange.

1. Land - These resources consist of free gifts of nature which includes all
natural resources above, on, and below the ground such as soil, rivers, lakes,
oceans, forests, mountains, mineral resources and climate. Land is considered
economic resources because it has a price attached to it. One cannot utilize
this natural resource without paying for it usually in the form of rent or lease.

2. Labor - This is also termed as human resources. Labor refers to all human
efforts, be it mental or physical, that help to produce want satisfying goods and
services. This applies not only to workers, farmers or laborers, but also to
professionals like accountants, economists or scientists. Labor is an
indispensable factor in the production of goods and services. In return, he earns
an income in the form of wages and/or salaries.

3. Capital - It is a finished product, which is used to produce goods. It consists

of all man-made aids to further the production process such as tools, machinery
and buildings. Capital also serves as an investment. Income derived from
capital is interest.

4. Entrepreneur - An entrepreneur is the organizer and coordinator of the other

factors of production: land, labor, and capital. An entrepreneur is one who is
engaged in economic undertakings and provides society with goods and
services it needs. He utilizes his initiative, talent and resourcefulness in the
creation of economic goods. He is able to compensate himself through the
acquisition of profits.

5. Foreign Exchange - This refers to the dollar and dollar reserves that the
economy has. This is mostly affecting the national economy in terms of import
and export transactions, and in the case of Philippine Overseas Filipino
Workers (OFW), is affecting their remittances of money to their families back
home.

Branches of Economics

The study of Economics is divided into two branches: Microeconomics and

Macroeconomics.

1. Microeconomics - It deals with the economic behavior of individual units such

as the consumers, firms, and the owners of the factors of production. Such
specific economic units constitute a very small segment of the whole economy.
For example, the price of rice, the number of workers of a certain firm, the
income of Mr. Cruz, the expenditures of PLDT, etc. Microeconomics is also
known as the Price Theory.

11
2. Macroeconomics - It deals with the economic behavior of the whole economy
or its aggregates such as government, business and households. An aggregate
is composed of individual units. The operation of the various aggregates and
their interrelationship is analyzed to provide a profile of the economy as a whole.

Macroeconomics is concerned with the discussion of topics like gross

national product, level of employment, national income, general level of prices,
total expenditures, etc. It is also known as employment and income analysis.

The Basic Economic Problems

All societies are faced with basic questions in the economy that have to be
answered in order to cope with constraints and limitations. These are:

1. What to Produce? - First of all, the system must determine the desires of
the people. Goods and services to be produced are based on the needs of the
consumers. However, there are some factors that should be taken into
consideration in producing the goods and services the individuals need. These
are:

1.1. Availability of resources;

1.2. Physical environment; and
1.3. Customs and traditions of the people.

2. How much to Produce? - Knowing what to produce is not enough. The

system must know how much of the chosen goods should be produced. It must
determine how many of these buyers are willing to buy the goods and services
produced by the economy. Here, the people’s taste and preference plays a
major factor in determining production.

3. How to Produce? - When producing goods and services, one has to think
of how best to do it. The best way to make goods is not to spend too much. This
also means you have to make goods with quality. To make goods like these,
one has to know the best way of making goods. You have to choose the
cheapest way. But this way must also let you make something with good quality.

4. For Whom Shall Goods and Services Produced? - The last question has
something to do with the problem of distribution. Once the goods are produced,
how shall they be distributed. Thinking about this problem means asking, “Who
gets what?” on a bigger scale. In this case, this means whatever is being sold
can be bought. But only those who have money and who want it can buy what
is being sold. The poor cannot buy the same goods and services as rich people.
When you have money, you have purchasing power. It means, you have the
power to buy things.

12
Economic Systems

The term economic system simply means the organization of economic

society with reference to the production, exchange, distribution and
consumption of wealth (Leańo, et al., 2012). The economic system is the means
through which society determines the answers to the basic economic problems
mentioned. There are four commonly used economic systems. These are:

1. Traditional Economy. It is also known as the subsistence economy. In this

type of economy, people produce goods and services for their own
consumption. Decisions are based on customs and traditions and the
production techniques are outmoded and sometimes obsolete.

2. Command Economy. Under this system, the government takes hold of the
economy of the State. The government does policy formulation, economic
planning and decision-making. It dictates on what to produce, how to produce
and for whom to produce. The system works based on the interest of the
country and not on the individual. In this case, the consumer could not choose
the goods and services he wanted. The government answers the major
economic questions through its ownership of resources and its power to enforce
decisions.

3. Market System - In a capitalistic system, business enterprises are owned and

controlled by private individuals. One of the major features of this system is
“free enterprise” meaning that any individual can engage in any enterprise,
which he thinks will yield him a profit in competition with other businesses.
Inherent in a market economy is individualism or “laissez-faire” which means
“let alone” or freedom from government control of business enterprise. Private
firms make the major decisions about production and consumption.

4. Mixed Economy - This is a system which is a mixture of the different types of

economy. The private capitalist and the government play a major role in solving
the basic problems of the economy for the benefits of the consumers. The
government sets laws and rules that regulate economic life, produces
educational and police services, and regulates pollution and business.

Methods of Economics
Because economics is a science, there is a right way of answering its
questions. To get the answers, we use what is called an empirical method.
Here, “empirical” means we get answers by studying things carefully. We
study what is given. If we can, we do math to get answers. We study facts with
care. How?
To do this, we have to put facts in order. We can make a list or a table of
what we know. It can also help if we study what causes things to happen. But
since we cannot study every little fact, we can make guesses. However, these
guesses come from what we know for sure. We may call them generalizations.

13
 A generalization is something we think of as true in most cases. This helps
because we cannot always study everything. To make things simple, we
already guess how some people will act in the economy.
As a science, economics demands a way of answering questions. For
instance, the law of demand tells us that if the price of a good goes up, people
will not buy it as much. This will happen, ceteris paribus.
In this example, ceteris paribus is a generalization. It means the demand
law will be true if nothing but the price changes. It means everything else will
stay the same. If something aside from the price changes, the demand law will
be false.
For example, what if the money a person earns goes up? What if it goes
up more than the price of the good goes up? This means the person still has
more money to spend. So he will still buy the goods even if the price is higher.
Economics has what we call theories. Theories are ideas. They tell us why
people act a certain way. They also tell us why things are the way they are.
Theories can be shown using tables or graphs, too. When we apply
economic beliefs in real life, we call them applied economics or economic policy.

Economics as an Applied Science

Applied Economics is the application of economic theory and
econometrics in specific settings with the goal of analyzing potential outcomes.
John Neville Keynes is attributed to be the first to use the phrase “applied
economics” to designate the application of economic theory to the interpretation
and explanation of particular economic phenomena (Dinio, et al., 2017).
We should be able to improve human welfare among Filipinos by the
investigation and analysis of economic problems in the real world. Applying
economic theory in our lives means trying to address actual economic issues
and be able to do something about it. The concept of scarcity and choice should
encourage us as individuals to help in our own way to provide solutions to the
country’s economic problems.

14
 What’s More

Activity 1.1.2 Word Search. Identify the word or terminology described in each
number below. Find and encircle it from the letter boxes given, before writing it
down for your answer.

M I C R O E C O N O M I C S R

A L M L K P A Z H K Q W O R O

R A A P R L R D L P U Y M T M

E N C E O M Q O L J B I M O A

N U D C E R A T D Q L P A Q C

T N Y O S P T X O U K J N H R

R A O N Q R P S W R C F D G O

E P L O U S S C F Y U T E D E

P P N M I L A B O R Z A I S C

R L E I N T R O X C C V B O O

E I W C E U F P K J L M D N N

N E G S C A R C I T Y K H M O

E D Z K S V E D A S D F A G M

U E T A X P A Y E R Q R F W I

R Z N J U W M W U Y K T R E C

I G A H P A U I J E G I O P S

A A R D N X B K T N C X Z S Z

C B F B E Y J L I V B N M A Q

E A S T I N T E R E S T E V W

C R E S O U R C E S H W R E T

1. __________ is the social science that involves the use of scarce resources
to satisfy unlimited wants.
2. Economic resources, also known as factors of __________, are the
resources used to produce goods and services.

15
3. __________ is a condition where there are insufficient resources to satisfy
all the needs and wants of a population.

4. __________ is a physical and human effort exerted in production.

5. Capital is a man-made resource used in the production of goods and services,

which include machineries and equipment. The owner of capital earns an
income called _______________.

6. __________ is the authoritative system wherein decision-making is

centralized in the government or a planning committee.

7. Soil and natural ___________ that are found in nature and are not man-
made.

8. __________ economics is the application of economic theory and

econometric in specific settings with the goal of analyzing potential outcomes.

9. An __________ is the organizer and coordinator of the other factors of

production.

10. ______________ deals with the economic behavior of individual units such
as the consumers, firms, and the owners of the factors of production.

What Have I Learned

Activity 1.1.3 Check Your Understanding

1. Why is economics a study of social science?
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

16
2. Why economics is deeply rooted in the concept of scarcity? How can you
relate scarcity as a Senior High School student?
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

What I Can Do

Activity 1.1.4. Making It Count!

Talk to the person who prepares the household budget for the family, it
could be your mother or your father. Make a list of all the basic expenses
for one month. Then compute how much percentage is each expense in
relation to the amount of budget per month. Write your answer in the table
below.
List of Basic Expenses Compare to Monthly Budget
List of Basic Expenses Amount of Monthly
Budget:_________________
Goods/Services Expense Amount Percentage

A. Which expense has the highest percentage of the budget? Do you

think it’s justifiable? Why?
________________________________________________________
________________________________________________________
________________________________________________________
_____________________________________________

Lesson 1.2 Basic Economic Problems and the Philippine

17
 Socioeconomic Development in the 21st Century
A solid understanding of economic principles and how they are applied
in real-life situations can serve as significant tools to help address the country’s
economic problem.
To understand the basic economic problems, imagine two countries, one of
them rich and the other poor. Do they have the same economic problems? The
answer is yes, but it is not that simple. There is a difference.

The rich country can solve problems easier. They can solve problems
faster. They do not have to worry about basic problems. But for poor countries,
finding food for daily living is in itself a problem. They have a hard time finding
shelter, clothing, health services, or even education.

Another reason why even rich nations have economic problems is

because of the way human beings act. Human nature means an endless list of
wants. But there are not enough things to give us what we want. Even rich
nations cannot escape human nature and limited resources.

Applied Economics in Relation to Philippine Economic Problems

The Philippine economy has grown significantly during President Benigno
Simeon Aquino’s administration. With a growth rate of the country’s Gross
Domestic Product of 6.8% in 2012, improving to 7.2% in 2013, and slowing
down to 6.1% in 2014, these rates are an improvement of past rates preceding
President Aquino’s term. It is also higher than its Asian neighbors such as
Malaysia, Thailand, South Korea, Hongkong, India, and Indonesia (CIA World
Factbook, 2013).
Despite this admirable growth, people, especially the poor, have been
complaining of non-inclusive growth. Millions of Filipinos are claiming they
experience hunger or they still live below the poverty level.
Unemployment is still a main problem of the Philippine economy with an
unemployment rate rose to 17.7 percent accounting to 7.3 million unemployed
Filipinos in the labor force in April 2020. According to the Philippine Statistics
Authority, this is a record high in the unemployment rate reflecting the effects
of Corona virus disease 2019 (COVID-19) economic shutdown to the Philippine
labor market.
Employment rate in April 2020 fell to 82.3 percent from 94.7 percent in
January 2020. In April 2019, it is posted at 94.9 percent. This translates to 33.8
million employed persons in April 2020 from 41.8 million in April 2019. All
regions reported double-digit unemployment rates. The highest unemployment
rate was in Bangsamoro Autonomous Region in Muslim Mindanao (BARRM) at
29.8 percent. It is followed by Region III (Central Luzon) and Cordillera
Administrative Region (CAR) with unemployment rates recorded at 27.3

18
percent and 25.3 percent, respectively (https://psa.gov.ph/content
/employment-situation-april-2020).
Another significant socioeconomic problem in the country is poverty.
According to the Philippine Statistics Authority, in the first semester of 2018, a
family of five needed no less than P7,337, on average, to meet the family’s
basic food needs for a month. On the other hand, no less than P10,481, on
average, was needed to meet both basic food and non-food needs of a family
of five in a month. This amount is the poverty threshold. These are 10.9 percent
higher than the food and poverty thresholds from the first semester of 2015.
The booming population growth in the Philippines is another basic
economic problem that can be connected to the issue of scarcity. When
population becomes too big, economic resources may no longer be enough to
support the growing population. According to the 2014 census, the Philippine
population stood at 100 million. As of 2020, from World Population Review data,
it has reached 110 million people. This is apparently the reason why
schoolrooms are not enough for the children who are of school age. This could
also be an explanation why government hospitals are crowded with sick people
and maternity wards are full of women giving birth with hospital beds that are
not enough to accommodate them.
The country’s problems vary with times and circumstances. It is now a
challenge for the students to observe and identify what these problems are.

What’s More

Activity 1.1.5 Making It Count!

The Philippines has encountered many serious problems most of the time.
In the table below, list down some of these economic problems the country has
encountered for this year. At the opposite side, give at least three possible
solutions that you think will help solve the problem you have listed at the right.

Economic Problems Possible Solutions

1.

1. 2.

3.

19
 1.

2. 2.

3.

1.

3. 2.

3.

What Have I Learned

Activity 1.1.6 Think and Reflect

Directions: Make a reflection journal where you will write your answers to the
following questions:
1. How do you assess our economy today? Is it underdeveloped? developing?
or developed? Why?
2. What factors you think affect the recurrence of the country’s economic
problem? As a student, how can you eliminate or minimize these problems?

20
 What I Can Do

Activity 1.1.7. I Can Do This!

If you were to advise the President of the Philippines on how to address the
issues on poverty and unemployment to improve the lives of the Filipino people,
what would you tell him and why?

______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

Additional Activities

Activity 1.1.8 Drawing Out the Artist in You!

Create a poster showing a basic economic problem in your locality. To make a

poster, you need white cartolina and some drawing and coloring materials. The
poster must look neat with labels that are readable and relevant.

21
 Name:___________________________
SUMMATIVE Date:_________________ Section: _________
TEST Teacher: _____________ Score

Test I. Memory Recall

Directions. Write down the correct answer in the space provided.

1. _______________ A social science which deals with the allocation of

scarce resources to satisfy the unlimited human
wants.
2. _______________ The application of economic theory and econometrics
in specific settings with the goal of analyzing potential
outcomes.
3. _______________ It deals with the economic behavior of the whole
economy or its aggregates such as government,
business and households.
4. _______________ The way the economic units are organized to make
decisions on the economic problems of society.
5. _______________ A condition where there are insufficient resources to
satisfy all the needs and wants of a population.
6. _______________ This is a system which is a mixture of the different
types of economy.
7. _______________ It is a finished product which is used to produce other
goods.
8. _______________ It deals with the economic behavior of individual units
such as the consumers, firms, and the owners of the
factors of production.
9. _______________ Man’s needs required for his survival.
10. ______________ It is also termed as human resource.

Test II. Identification

Directions. Identify which economic resources are referred to by the following
words. Choose the correct answer from the given word bank and write it on the
lines before each number.

Land Labor

Capital Entrepreneur

Foreign
_______________ Exchange
1. Entertainers
_______________ 2. Minerals
_______________ 3. Forests
_______________ 4. Marine resources
_______________ 5. Teachers

22
 _______________ 6. Technology
_______________ 7. Production equipment
_______________ 8. Engineers
______________ 9. Call center agents
______________ 10. Business proprietor

Test III. Essay

Directions. Answer the following questions intelligently. (10 points each)

1. In what way is applied economics important in tackling economic issues or

problems of the country?
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

2. It is said that we cannot solve economic problems by making economic

solutions alone. If this is so, why and why not?
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

23
 Lesso
2n
Utilizing Applied Economics

Have you ever asked who decides on the prices of the goods you buy?
For many people, the answer is easy. They think the government decides how
high or low prices should be. But this is not always true. For example, the
government may only regulate the prices of rice, gasoline, and apartment rent.
But the prices of most goods are determined by market price.

A market price is the price determined only by demand and supply. It also
means that the government had little say about that price. But what if the
government decided on a price that is higher than the market price? Who would
be affected? How will this affect the demand and supply for that good or service?

In such a case, the sellers will be badly affected. Since people want lower-
priced goods, they will buy less. That means if the price goes up, they will not
buy as much. The sellers will have a lot of goods that people are not buying.

What about if the government mandate the sell of goods or services at a

price lower than the market price? In this case, remember that people want as
much profit as possible. If the government decides on a price lower than what
the market alone would have allowed, will the sellers be happy? The answer is
no. If people have to pay the sellers less for their goods, the sellers will get less
money.

In general, prices are decided upon by demand and supply. In this chapter,
we are going to study the law of supply and demand. It will also discuss the
price structure and the role of government in the process.

Lesson 2.1 Application of Demand and Supply

What I Need to Know

In an economy where prices are continuously rising, people have always

wondered what factors cause prices to fluctuate. The core of this lesson aims
to show that demand and supply are the main forces that cause prices to
increase or decrease. The lesson also tries to explain why an increase in the
price of a commodity will make consumers want to buy less of it and producers
want to sell more and why a price decrease will cause the opposite reaction.

24
 What’s New

Activity 1.2.1. Picture Analysis

Directions: Analyze the picture in answering the questions below:

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

______________________________________________________________
______________________________________________________________
______________________________________________________________

2. What will happen if the prices of basic commodities will keep on increasing?
______________________________________________________________
______________________________________________________________
______________________________________________________________

3. Is there any effective way of keeping the prices of basic commodities at levels
that are accessible to the masses?
______________________________________________________________
______________________________________________________________
______________________________________________________________

25
 What Is It

The Meaning of Demand

Demand is the schedule of various quantities of commodities which
buyers are willing to purchase at various prices in a given time and place. In
simple terms, demand means that someone wants something. In economics, it
also means a group people want to buy certain goods or services.
Demand tells us what people want. It also tells us what they can buy at a
certain time and place. Because it involves buying, it also involves at what price
people can buy it or are willing to buy it.
Determinants of Demand
1. Income. The amount of money people earns affects how much or how little
they buy. For example, the factory worker earns P10, 000 every month while
the business man earns P30,000. This means the factory worker has less
money. He can buy less than the businessman. However, when the income of
the factory worker goes up, he can buy more. Still, this will not mean that he
can already buy as much as the businessman can. But if the income of the
businessman goes down, he can buy less.
This means that a change in income leads to a change in the demand for
goods and services. More money means more demand. Less money means
less demand.
2. Population. More people means more demand for goods and services. That
is why, we can observe that there are more buyers in the city stores than in the
barrio stores. Conversely, less population means less demand for goods and
services. Obviously, business is poor in the rural areas compared to business
in the urban areas.
3. Tastes and preferences. Demand for goods and services increases when
people like or prefer them. Such tastes or preferences are greatly influenced by
advertisement or fashion. On the other hand, if a certain product is out of
fashion, the demand for it decreases.
4. Price Expectations. When people find out that prices are about to increase,
they buy more of these goods before the price changes. When people find out
that prices are about to go down, they will not demand these goods as much.
Why do people act like this? It is because they want to use their money
wisely. They want to economize. It means they want to spend properly to buy
what they want or need at the best possible price. They want to save money
even after buying things.
5. Price of related goods. When the price of a certain good increases, people
tend to buy substitute products. For example, if the price of Colgate increases,
consumers buy less of Colgate and more of the close substitute like Close-up

26
or Hapee. This means, the demand for Colgate decreases while the demand
for substitutes increases. This means, if the price of one good increases, the
demand for the other good increases. For substitutes then, price and quantity
demanded are directly related.

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

The Ceteris Paribus Assumption

The law of demand states that as price increases, quantity demanded

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

However, if the determinants of demand are considered major factors or

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

Validity of the Law of Demand

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

27
 Table 1. Hypothetical Demand Schedule of B

From the table, it is shown that an

individual would tend to buy more when
its price is low than when the price is
high.
At a price of P35.00, quantity demanded
by the consumers is 5 while a decrease
of price to P5.00 increases the quantity
demanded of the consumers to 35.
PRICE QUANTITY DEMANDED
5 35
10 30
15 25
20 20
25 15
30 10
35 5

The demand schedule shown in Table 1 can also be understood through

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

Figure 1. Graphical Illustration of a Demand Curve

In Figure 1, price is presented on the

vertical axis and quantity demanded on
the horizontal axis. The points can be
connected in a continuous curve. We
label our demand curve with D, which
means demand, to indicate that it is the
entire demand schedule.
It can be noted that the demand
curve is sloping down. It shows that price
and quantity demanded are inversely

proportional. This inverse relationship between prices and quantity demanded

depicts the law of demand.

28
The Meaning of Supply
Supply is the schedule of various quantities of commodities which
producers are willing and able to produce and offer at various prices in a given
time and place. In other words, supply is the amount of goods and services
available for sale at given prices in a given period of time and place. Supply
implies the ability and willingness of sellers to sell.

Determinants of Supply
1. Technology. This refers to the method of production or how something is
produced. Having modern technology means being able to produce more. This
means more supply. If producers had to rely on old technology which uses
animals instead of machines, production would be slower. Better technology
means more supply produced and less cost of producing these goods.
2. Cost of production. This refers to the things a producer has to spend on to
keep making goods and services. This includes: raw materials, laborers, bank
loan interests, taxes, and land or building rent. An increase in cost of production
makes it harder for the producer because he or she has to pay more to keep
producing. This is why when the cost of producing goes up, the supply of goods
most likely goes down.
The producer, given a higher cost of production, cannot produce as much.
Wage is a cost of production. Think of a factory. A factory needs workers. The
owner of the factory needs to pay the workers so that they will help him or her
make goods. Wage is a cost that the owner has to pay. It is the cost of making
something. This means that if the owner has to pay more wage, the cost of
production goes up. This means supply of the goods will go down.
For example, businessmen don’t want to sell more goods if they are not
sure that they will get as much money. If they have to pay workers more, that
means less of their profit will stay with the owners. They have to give more of
what they earn to the workers. What if sellers just increase price when cost of
production goes up? Won’t this help them get more money? It might, but not all
the time. Remember that higher prices mean less people will buy. This means
that if the cost of production doesn’t go down soon, sellers will continue losing
money. They might have to stop producing completely.
3. Number of sellers. More sellers or more factories means an increase in
supply. On the other hand, less sellers or factories means less supply.
4. Prices of other goods. Since a price increase means less demand, a
producer may choose to produce something else to continue gaining profit or
to have more profit. Let us say, the price of rice goes up. If so, then a farmer
may choose to produce more corn instead because he knows that less people
will buy rice from him.
5. Price expectations. If producers expect prices to rise very soon, they usually
keep their goods and then release them in the market when the prices are
already high. Sadly, this leads producers to keeping their supply of goods until

29
prices increase. This is called artificial shortage. This is usually what happens
when the government says that the prices of some basic goods are about to go
up.
Some basic goods are: gasoline, rice, milk or cooking oil. What about if
producers expect a price decrease? In this case, they will lessen production.
Still, there are some exceptions, like farmers. They cannot lessen their crop
supply especially when their crops are already growing. On the other hand,
many factories increase the number of their goods due to expected price
increase.
6. Taxes and Subsidies. Certain taxes increase the cost of production. Higher
taxes discourage production because it reduces the earnings of businessmen.
That is why the government extends tax exemptions to some new and
necessary industries to stimulate their growth. Similarly, tax incentives are
granted to foreign investors in order to increase foreign investment in the
Philippines. This will result to more goods.
In the case of subsidies, there is financial assistance to producers. Clearly,
subsidies reduce the cost of production. This induces businessmen to produce
more.
The Law of Supply
The law of supply states that the quantity offered for sale will vary directly
with price. This means that as price increases quantity supplied also increases;
and as price decreases, quantity supplied also decreases. This direct
relationship between price and quantity supplied is the law of supply. Producers
are willing and able to produce and offer more goods at a higher price than at
a lower price. Obviously, sellers offer more goods at higher prices because they
make more profits. Such behavior of sellers or producers is a natural inclination.
No businessman is willing to produce goods if he makes no profit.

The Ceteris Paribus Assumption of Supply

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

Validity of the Law of Supply

As price increases, quantity supply also increases,

As price decreases, quantity supply also decreases

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

Table 2 indicates that a seller offers a big quantity of brand Y in the market
if the price is high and likewise, sells only a few when the price is low.
30
Table 2. Hypothetical Supply Schedule of Brand Y
PRICE QUANTITY SUPPLIED

5 5

10 10

15 15

20 20

25 25

30 30
35 35

The supply schedule as shown in Table 2 can also be illustrated in

graphical form known as the supply curve. This is shown in Figure 2.

Figure 2. Graphical Illustration of the Supply Curve

It can be noted that the supply

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

31
 What’s More

Activity 1.2.2. Show Me The Plot 1

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

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

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

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

P 120.00 700
P 100.00 650
P 90.00 600
P 75.00 500
P 60.00 400
P 50.00 300

32
 What I have Learned

Activity 1.2.3. Sum Me UP

Based on the lesson, I have realized that __________________________

______________________________________________________________
______________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
______________________________________________________________
______________________________________________________________

33
Lesson 2.2 Demand and Supply in Relation to the
Prices of Basic Commodities

What’s In

We have seen that consumers demand different amounts of goods and

services as a function of their prices. Similarly, producers willingly supply
different amounts of goods and services depending on their prices. What
happens when suppliers and consumers meet?

In this lesson, we will illustrate the effect of combining supply and demand.
We will also determine how the forces of demand and supply operate through
the market to produce an equilibrium price and equilibrium quantity.

What’s New

Activity 1.2.4. Show Me The Plot 2

Directions: Plot the following hypothetical market demand and supply

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

Quantity Supplied Price Quantity Demanded

5 P 6.00 9
6 P 7.00 8
7 P 8.00 7
8 P 9.00 6
9 P10.00 5
10 P11.00 4

34
 What Is It

Alfred Marshall, a British economist, introduced a kind of pricing scheme

by combining the law of demand and the law of supply. With this combination,
an equilibrium price and equilibrium quantity is formulated. This is known as the
market equilibrium.

Market Equilibrium

From a separate discussion of demand and supply, we now proceed with

reconciling the two. The meeting of supply and demand results to what is
referred to as “market equilibrium”. As earlier said the market referred to here
is a situation where buyers and sellers meet, while equilibrium is generally
understood as a “state of balance”.

Equilibrium

Market equilibrium generally pertains to a balance that exists when

quantity demanded equals quantity supplied. Market equilibrium is the general
agreement of the buyer and the seller in the exchange of goods and services
at a particular quantity. At equilibrium point, there are always two sides of the
story, the side of buyer and that of the seller.

For instance, given the price of P30.00 the buyer is willing to purchase 150
units. On the seller side, he is willing to sell the quantity of 150 units at a price
of P30.00. This simple illustration simply shows that the buyer and seller agree
at one particular price and quantity, that is P30.00 and 150 units. This is the
main concept of equilibrium: that there is a balance between price and quantity
of goods bought by consumers and sold by sellers in the market.

Table 3. Supply and Demand Schedules Indicating the Equilibrium Price

and Equilibrium Quantity
Quantity Supplied Price Quantity Demanded
50 P 10.00 250
100 P 20.00 200
150 P 30.00 150
200 P 40.00 100
250 P 50.00 50

35
Equilibrium Market Price

Equilibrium market price is the price agreed by the seller to offer its good
or service for sale and for the buyer to pay for it. Specifically, it is the price at
which quantity demanded of a good is exactly equal to quantity supplied of the
same good.

Let us work through the supply and demand schedules in Table 3 to see
how supply and demand determine market equilibrium. To find the market price
and quantity, we find a price at which the amount desired to be bought and sold
just matches. If we try a price of P10.00, a producer would like to sell 50 units
while consumers want to buy 250 units. The quantity demanded exceeds
quantity supplied. At price P40.00, a quick look shows that quantity supplied
which is 200 units exceeds the quantity demanded which is 100 units.

We could try another process, but we can easily see that the equilibrium
price is P30.00. At P30.00, consumers’ desired demand of 150 units is equal
with the desired supply which is also 150 units. This denotes that supply and
demand orders are filled, and consumers and suppliers are satisfied.

In Figure 3, an illustration through graph of demand and supply can be

seen.

Figure 3. Equilibrium Price and Equilibrium Quantity Established By Interaction

Between Demand and Supply

What happens when there is market disequilibrium?

When there is market disequilibrium, two conditions may happen: a
surplus or a shortage may occur as shown in Figure 3.
Surplus is a condition in the market where the quantity supplied is more
than the quantity demanded. When there is a surplus, the tendency is for sellers
to lower market prices in order for the goods and services to be easily disposed
from the market. This means that there is a downward pressure to price when
there is a surplus in order to restore equilibrium in the market. This is depicted

36
in Figure 3 by the arrow from point b going down to the equilibrium point.
Generally, a surplus happens when there are more products sold in the
market by sellers but few products are bought by consumers. This is because
the quantity of goods that buyers are willing to buy at a given price is less than
the quantity of goods that sellers are willing to sell at the same price.
Shortage is basically a condition in the market in which quantity
demanded is higher than quantity supplied at a given price. As you may have
observed in Figure 3, a shortage exists below the equilibrium point. In particular,
a shortage happens when quantity demanded is greater than quantity supplied
at a given price.
When there is a shortage of goods and services in the market, there is an
upward pressure on prices to restore equilibrium in the market. In this
particular situation, it is the consumers that will influence that price to go up
since they will bid up prices in order for them to acquire the goods or services
that are in short supply. For as long as there is disequilibrium in the market,
prices will still go up until such situation is normalized.

The Law of Demand and Supply

When supply is greater than demand, price decreases;

When demand is greater than supply, price increases;
When supply is equal to demand, price remains constant.

This constant price is the equilibrium or market price. This means that
buyers and sellers agree on that price.

Price Controls

When the market is experiencing a surplus, there is a possibility that

producers will lose. Conversely, when the market is encountering shortage,
there is likelihood that consumers will be abused. What happens if
disequilibrium in the market persists for a longer period of time? If this happens,
the government may intervene by imposing price controls.

Price control is the specification by the government of minimum or

maximum prices for certain goods and services, when the government
considers it disadvantageous to the producer or consumer.

37
Two Types of Price controls:

1. Floor Price - is the legal minimum price imposed by the government on

certain goods and services? The setting of a floor price is undertaken by the
government if a surplus in the economy persists.

Generally, this policy is resorted to in order to prevent bigger losses on the

part of the producers. Floor price is a form of assistance to producers by the
government for them to survive in their business.

2. Price Ceiling - is the legal maximum price imposed by the government? In

most cases, a price ceiling is utilized by the government if there is a persistent
shortage of goods in the economy. The government regularly monitors the
market and imposes a maximum price on commodities, which is to be strictly
followed by producers and sellers.

A price ceiling therefore is imposed by the government to protect

consumers from abusive producers or sellers who take advantage of the
situation. This is usually done by the government after the occurrence of a
calamity like typhoon or severe flooding.

Market Equilibrium: A Mathematical Approach

In the previous discussions, we have discussed and presented market

equilibrium through graphical presentation. In this section, we will try to apply a
mathematical equation in determining the price and quantity equilibrium in the
market.
Equation:

Demand equation: QD = a - b (P) (1)

Supply equation: QS = a + b (P) (2)

Equilibrium condition: QD = QS (3)

Take note that in the said equations, there are three unknown variables: Q D,
QS, and P where QD is quantity demanded, QS is quantity supplied, and P is
price. Moreover, the parameter in equations (1) and (2) is a and the coefficient
is b. Given these equations, we can now determine the equilibrium price and
quantity.

Example:

Look for the PE and QE given the following information:

QD = 68 - 6P
QS = 33 + 10P

38
Solving the problem, we can simply state our equilibrium equation as:

a - b(P) = a + b(P)

Substituting our values, we have:

68 - 6(P) = 33 + 10(P)

Solving for the unknown (P), we simply group like terms, thus

68 - 33 = 10P + 6P
35 = 16P

Dividing both sides by 16, we get

P = 2.19

Now we have determined the price of the goods. The next problem for us
is to determine the equilibrium quantity. Since we already know the price, all we
have to do is to substitute the value of the price to our previous equations, thus:

68 - 6 (2.19) = 33 + 10 (2.19)

Solving the equation, our QD = QS is equal to 54.8 or we can set the value
in the whole number. Therefore, the equilibrium quantity is equal to 55 units
and the equilibrium price is P2.19.

39
 What’s More

Activity 1.2.5. Find My Match

Directions: Match the items in Column A with Column B.

Column A Column B
1. General agreement of the buyer and a. Floor price
the seller in the exchange of goods and
services at a particular quantity.
2. The legal minimum price imposed by b. Price control
the government on certain goods and
services.
3. A condition in the market where the c. Adam Smith
quantity supplied is more than the
quantity demanded.
4. British economist who introduced a d. Market equilibrium
kind of pricing scheme by combining the
law of demand and the law of supply.
5. The quantity of a commodity which e. Shortage
buyers will buy at a given time and place
will vary inversely with the price.
6. The legal maximum price imposed by f. Surplus
the government.
7. This means that as price increases g. Alfred Marshall
quantity supplied also increases; and as
price decreases, quantity supplied also
decreases.
8. The specification by the government h. Price ceiling
of minimum or maximum prices for
certain goods and services.
9. Basically a condition in the market in i. Demand
which quantity demanded is higher than
quantity supplied at a given price.
10. It means all other things equal or j. Ceteris Paribus
constant.
k. Law of Supply

40
Activity 1.2.6. Show Me The Plot 3

Directions: Plot the following hypothetical market demand and supply

schedules for commodity X in a graphing paper.

Quantity Demanded Price Quantity Supplied

(Units) (Peso) (Units)
150 P 30.00 900
300 25.00 800
350 20.00 700
600 15.00 600
800 10.00 400
1000 5.00 200

1. What is the equilibrium price? Equilibrium quantity?

______________________________________________________________

What I have Learned

Activity 1.2.7. Sum Me UP

Based on the lesson, I have realized that the law of supply and demand
states ________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

41
Lesson 2.3 Market Structures

What’s In

After looking at the basic principles of demand and supply, it will also be
helpful to learn about the market structures in which sellers can operate. Each
structure will be described in terms of the nature of the product being sold, the
number of buyers and sellers in the market, and the ease of entering or exiting
the market.

In this lesson, you will be able to explain the market structures (perfect
competition, monopoly, oligopoly, and monopolistic competition).

What’s New

Activity 1.2.8. Picture Analysis

Directions: Describe or give your own idea about the given pictures.

42
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

What Is It

Market structure refers to the competitive environment in which buyers

and sellers operate. Competition is rivalry among various sellers in the market.
As a student, you are familiar with the word competition. You are exposed to
competition in school: spelling bees, quiz bees, and sports fests. On the
television, you watch beautiful girls from all over the world compete for the Miss
Universe or Miss World title. You see how the various teams of the PBA
compete to win the championship.

The market is a situation of diffused, impersonal competition among

sellers who compete to sell their goods and among buyers who use their
purchasing power to acquire the available goods in the market.

There are varying degrees of competition in the market depending on

the following factors:

⚫ Number and size of buyers and sellers

⚫ Similarity or type of product bought and sold
⚫ Degree of mobility of resources
⚫ Entry and exit of firms and input owners
⚫ Degree of knowledge of economic agents regarding prices, costs,
demand, and supply conditions

43
Market Models Defined

1. Perfect Competition - the market has a lot of independent sellers. These

independent sellers offer the same goods. That is why they have to compete
against each other. Each seller is trying to get more profit than the others.

2. Monopoly - exists when a single firm that sells in the market has no close
substitutes. The existence of a monopoly depends on how easy it is for
consumers to substitute the products for those of other sellers.

3. Monopolistic Competition - this means there is almost a large number of

small sellers selling goods which are similar but not the same.

4. Oligopoly - is a market dominated by a small number of strategically

interacting firms. Few sellers account for most of the total production since
barriers to free entry make it difficult for new firms to enter.

Characteristics of Market Models

Perfect Competition

1. There is a large number of independent sellers.

2. Products are all the same. Because they are the same, they are
homogeneous. Examples are farm goods like rice, corn, or fruits.

3. No one seller and no one buyer can cause a change in the price of a good.

There are too many sellers with the same good. If one seller decreases
his or her supply a lot, this will still not change the total supply of everyone else
in the market. The market price of the goods will stay the same.

At the same time, if one seller sells his or her goods at a lower price than
anyone else, many people will buy from him or her right away. If he or she sells
at a higher price than anyone else, he or she will not sell his goods. The rise or
fall of market price depends on total demand or total supply, not on a single
buyer or seller.

4. It is easy for new firms to enter the market. It is also easy for firms that are
already there to leave the market. For example, a vegetable vendor is free to
sell in the market. He or she only pays the market fee. If she no longer wants
to sell, she can simply leave the market.

5. There is no competition that does not include prices. Competition without

price means advertising or promotion, like commercials. But there is no need
for these because the goods being sold are all the same.

44
Monopoly
1. There is only one producer or seller.
2. Not all the products are exactly the same. This is because there are no close
substitutes for them. Some firms in real life which are pure monopolies are the
following: MERALCO, PLDT, and MWSS.
3. The monopolist chooses the price. Since he or she is the only one selling the
goods, he or she can lessen the output to make the price higher. He or she can
also increase supply if this will increase his profit.
4. It is very hard for new firms to enter the market. This is because there are
already other firms who know how to work in the market better.
If there is a monopolist, this firm is very powerful in the market. There are
also natural monopolies because there are some things like electricity or water
that cannot be sold by more than one company.
5. There may or may not be a lot of promotion of the goods sold by the
monopolist. By promotion we mean billboards or commercials.

Since no one else sells the goods sold by the monopolist, there is no need
to tell people to buy from a particular company. In a market with a monopoly,
the people can only buy from the monopolist.

Monopolistic Competition
1. There are many sellers acting independently. This means at least 100 sellers.
In terms of competition, this means a thousand or more sellers.
2. Products are not all the same. The products look different from each other.
They are also sold in different places. There are different commercials and
billboards for them.
Examples are banks, books, medicine, and gasoline stations
3. There is a limited control of price. Some sellers can decrease or increase
their prices a little. This is because their products are different.
For example, not all brands of soap have the same price
4. New firms do not have a very hard time entering the market. Still, they have
a harder time than firms in markets with pure competition. Why?
This is because they need more capital. There is also more competition
because their products have to be better. They also need to promote it better
so people will choose their goods instead of others.

45
5. There is more non-price competition. Non-price here means firms have to try
to have better services and better places to sell. Their goods also need to look
better so that people will choose to buy from them instead of from other firms.

Oligopoly
1. Only some firms are powerful in the market. Each firm produces a big part of
the total output of the industry.
2. Products are either the same or different. Raw materials like cement or steel
are all the same. Finished goods like typewriters or cars are different from one
another.
3. The producers agree on a price depending on what each of them wants. The
biggest among the sellers is called the price leader.
4. It is hard for new firms to enter the market. They need a lot of capital and
they need to produce a large number of goods. It is hard to beat the firms that
have been in the market longer because these firms know better. But new firms
can still enter the market.
5. There is a lot of product promotion among those who make different goods.
In the case of producers who all sell the same goods, they have to promote
themselves well.

Determinants of Market Structure

1. Government laws and policies. In some industries, the government controls
how competitive firms can be.
This is for the good of the buyers and the economy. For example, in some
industries that sell water or electricity, only one firm is allowed to sell each
service or good.
For transportation like public buses or communication like telephone lines,
the government will let only one or two firms in particular places in the country.
The government also makes sure that the monopolies don’t abuse their power.
2. Technology. Because they have been monopolies for a long time, a lot of
firms have become very rich. This is because they did not have to try and beat
other firms to earn more profit.
But some new firms get hold of modern machines which help them
produce more goods and better goods compared to the monopolies. Because
of this, monopolies become oligopolies or monopolistic competition happens.
For example, abaca was once the best choice to use when making paper,
ropes, and fishing nets. But now, plastic is also used to make ropes, for example.
The abaca industry is no longer a monopoly.

46
3. Business policies and practices. New firms might be scared of big firms. Also,
new firms do not have as much input to use, unlike the big firms. Sometimes
the big firms will even work together. This makes it harder for new firms to earn
profit. The new firms can even buy the new firms instead of letting them work
in the market.
4. Economic freedom. Being free in this sense can mean having things of your
own. It means being able to sell what you want as long as no one gets hurt.
Having economic freedom may also mean firms can compete with one
another. In some cases, the firms try very hard to beat one another. Only a few
firms stay in the market.
In this case, a single seller or only a few can help in saying what the price
of goods should be. They can also say how much should be made.

What’s More

Activity 1.2.9 Word Finder

Directions: Unscramble the words. Write down your answers in the box.

1. GOLPYOLIO

2. MYOONOPL

3. COMTINOPEIT

4. LTICONPMOOSI

5. KTERAM

47
 What Have I Learned

Activity 1.2.10 Sum Me UP

Based on the lesson, I have realized that market structures__________

______________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________

What I Can Do

Activity 1.2.11. I Can Do This!

Give one example of an industry/company in the Philippines and identify what

market structure the company belongs to. Explain.
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

48
Lesson 2.4 Contemporary Economic Issues Facing
the Filipino Entrepreneur

What’s In

After learning about the workings of demand and supply and how these
forces affect the market, we will now focus on how the forces of demand and
supply, the theory and principles, can help in analyzing Philippine economic
problems.
In this lesson, you will be able to analyze the effects of contemporary
issues such as migration, fluctuations in the exchange rate, oil price increases,
unemployment, peace and order, etc. on the purchasing power of the people.

What’s New

Activity 1.2.12. Guess What?

Directions: Identify which Philippine government agencies are referred to by

matching column A and column B.

Column A Column B
1. Responsible for preparing, integrating,
manipulating, organizing, coordinating,
supervising and controlling all plans,
programs, projects and activities of the
government relative to energy exploration,
development, utilization, distribution and
conservation.
2. Tasked to contribute to the
enhancement of national security and the
protection of the territorial integrity and
national sovereignty
3. Prime mover of consumer welfare. It is

49
 committed to protecting the rights and
interests of the consumers and
developing policies and programs aimed
at sustaining the growth and development
of the Philippine economy.

4. Responsible for the formulation,

institutionalization and administration of
fiscal policies, management of the
financial resources of the government.

5. Responsible to formulate policies,

implement programs and services, and
serve as the policy-coordinating arm of
the Executive Branch in the field of labor
and employment.

What Is It

Philippine Peso and Foreign Currencies

Trading with other countries is also an important economic activity that

impacts on the economy. Selling locally made products, called exports, means
we earn dollars as payment for these goods bought by foreign buyers. In the
same manner, we buy goods from other countries, and these are our imports.
When we trade with other countries, we need a common currency to use to pay
for goods we buy from them and for them to pay us for goods we sell to them.
When we travel to foreign countries, we may bring peso or the US dollar, then
convert them into the local currency of the country which we visit.
The rate of conversion of the Philippine peso to a foreign currency is
reflected in the exchange rate. If we have pesos that we need to convert into
dollars, we need to know the current exchange rate. These rates are dependent
on the workings of demand for and supply of the currency in the market. For
example, if the US dollar is in demand, the price of the dollar will increase and
will be reflected in a higher exchange rate in favor of the dollar, which means
one will need more pesos to buy dollars.

50
 Table 4. Peso-Dollar/Euro Exchange Rates

BANGKO SENTRAL NG PILIPINAS

FINANCIAL MARKET OPERATIONS SUB-SECTOR

REFERENCE EXCHANGE RATE BULLETIN

July 30, 2020

EURO U.S. DOLLAR PHIL. PESO

COUNTRY UNIT SYMBOL EQUIVALENT EQUIVALENT EQUIVALENT

I. CONVERTIBLE CURRENCIES WITH BANGKO SENTRAL:

1 UNITED STATES DOLLAR USD 0.847817 1.000000 49.2170

2 JAPAN YEN JPY 0.008080 0.009530 0.4690

3 UNITED KINGDOM POUND GBP 1.102501 1.300400 64.0018

4 HONGKONG DOLLAR HKD 0.109397 0.129034 6.3507

5 SWITZERLAND FRANC CHF 0.929624 1.096491 53.9660

6 CANADA DOLLAR CAD 0.635831 0.749963 36.9109

7 SINGAPORE DOLLAR SGD 0.617267 0.728067 35.8333

8 AUSTRALIA DOLLAR AUD 0.609496 0.718900 35.3821

9 BAHRAIN DINAR* BHD 2.249150 2.652872 130.5664

10 KUWAIT DINAR KWD N/A N/A N/A

11 SAUDI ARABIA RIYAL SAR 0.226097 0.266681 13.1252

12 BRUNEI DOLLAR BND 0.615028 0.725426 35.7033

13 INDONESIA RUPIAH IDR 0.000058 0.000069 0.0034

14 THAILAND BAHT**** THB 0.026958 0.031797 1.5650

15 UNITED ARAB
DIRHAM AED 0.230850 0.272287 13.4011
EMIRATES

16 EUROPEAN
EURO EUR 1.000000 1.179500 58.0515
MONETARY UNION

17 KOREA WON KRW 0.000712 0.000840 0.0413

18 CHINA YUAN** CNY 0.121095 0.142831 7.0297

Source: Bangko Sentral ng Pilipinas, as of July 30, 2020

Table 4 is the list of the various currencies into which the Philippines peso
is convertible. The most commonly traded currency in the world is the US dollar.
We need foreign currencies to trade with other countries. When we buy
imported brands, the importers pay for these in the currency of the country from
which we buy these goods.

51
Labor Migration and the Overseas Filipino Workers
Another distinct feature of Philippine labor is the growth of laborers whom
we call the OFWs or the Overseas Filipino Workers. Primarily because of a high
unemployment rate in the country, currently at 6.4%, Filipino have started to
find work in other countries. In addition to this, migration is also affected by
wage gaps among countries. Because wages are higher in the developed
economies, Filipino teachers, engineers, doctors, nurses and other health
professionals and technical workers have to migrate.

Table 5. Distribution of Overseas Filipino Workers by Sex and Region (2014)

Region Number (In thousands)

Both Sexes Male Female

Philippines 2,320 1,149 1,170

National Capital Region 10.5 12.5 8.6

Cordillera Administrative 2.2 1.6 2.91

Region

I - Ilocos Region 8.2 6.4 9.9

II - Cagayan Valley 6.7 3.9 9.5

III - Central Luzon 15.5 18.6 12.4

IVA - CALABARZON 17.9 20.7 15.1

IVB - MIMAROPA 2.1 2.5 1.6

V - Bicol Region 3.4 3.3 3.6

VI - Western Visayas 8.6 8.4 8.7

VII - Central Visayas 6.5 8.8 .4

VIII - Eastern Visayas 1.1 1.2 1.1

IX - Zamboanga Peninsula 2.6 2.3 2.9

X - Northern Mindanao 3.4 3.3 3.6

XI - Davao Region 2.7 1.5 3.9

XII - SOCCSKSARGEN 4.6 2.3 6.9

Caraga 2.0 1.8 2.1

Autonomous Region in 1.8 1.0 2.7

Muslim Mindanao

Source: Philippine Statistics Authority

2014 Survey on Overseas Filipinos

52
 Scattered all over the world, our overseas Filipino workers have been
hailed as our modern-day heroes, contributing to the growth of the economy
and sending millions of dollars to their families back home in the Philippines.
The lack of jobs in their native land, and the low wages for whatever jobs are
available are the main reasons Filipinos, both male and female, try to find work
in foreign countries. Oversupply of workers has resulted in low-wage levels.
Insufficient jobs in relation to the available labor supply has also led to these
low-wage levels since workers compete among each other for these limited job
openings. Those unwilling to work at these low-wage levels look for greener
pastures, which they find in foreign countries. They do a wide variety of jobs:
professionals, health workers, caregivers, engineers and construction workers,
entertainers, and teachers.
Unemployment
Many things lead to unemployment. Technology can lead to
unemployment. How? For example, workers are needed to make shoes. But
one day, a new machine is made. It helps make more shoes faster. To buy
these machines and keep them working is cheaper than paying wages to
workers. So a shoe factory will no longer need a lot of workers. It will buy the
machines instead.
Business cycles also lead to people losing jobs. If the economy is doing
badly, less goods will be made. Less workers are needed. People will lose their
jobs. But not all things that lead to unemployment will last long.
What happens to a country when many of the people there don’t have
jobs? It means national income goes down and the government gets less
money. They have to stop working on some projects. It is because they do not
have enough money or funds. It means they cannot finish the roads or schools
they started building. Sometimes, they need to borrow money from other
countries.
Jobs are very important because they give people money. Without
money, people can’t but the things they need. They cannot buy basic goods
like food and water.

53
 Figure 4. Philippine Unemployment Rate from 1999-2019

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

Inflation
There is inflation when the prices of goods and services are high. When
there is inflation, does this mean that the price of every good is getting higher?
The answer is no. In fact, some prices stay the same or even fall. Other prices
rise very suddenly.
Inflation is bad for many parts of the economy. It is very bad for those who
have fixed income. Fixed income means they get the same amount of money
all the time. It does not change. When prices go up, they cannot buy as much
as they need or want. Inflation is also bad when lots of people don’t have jobs.
Demand for goods and services go down when prices go up. This means less
goods are made and this leads to less jobs. Even those who have savings in
the banks have a hard time.
For example, people put money in banks. We call this money savings.
When you have savings, you can use it not only to buy goods but also to pay
money you already own. When you borrow money from the banks, you have to
pay what you owe plus interest.
To get people to borrow money from them, every bank tries to give a lower
interest rate. But even if you had to pay a very low interest rate, you still have
to pay more for the goods you buy if there is inflation. This means you still spend
a lot of your savings. Instead of using it to buy more things, you pay more for
less goods because prices are higher. The value of your savings goes down.

54
 Why is inflation hard to solve? This is because of the way people act when
prices are about to go up. Let us say, Anna loves to read books. One day, she
finds out that the price of books will go up next week. What would she do?
In this case, she might try to buy lots of books before the price goes up.
When prices keep going up, the first reaction of people is to buy more. Why do
people do this?
They do this because they want to spend as much as they can before
prices get even higher. When prices keep going up, people want to spend their
money before its value becomes very low. But this is not good because people
will save less money.

Figure 5. Philippine Inflation Rate (2010-2019)

Source: https://www.macrotrends.net/countries/PHL/philippines/inflation-rate-cpi

Taxes
We pay taxes for the government to provide public goods and services
that empower and enable individuals and institutions alike (e.g., school,
business corporation) to pursue their dreams. One example of a public good is
farm access roads for farmers to transport their produce to the cities for the
needed cash income. Another example is the public school system to educate
children of poor families out of poverty. On the other hand, an example of a
public service is restoring peace and order in war-torn areas in Mindanao by
the armed forces and police that all can resume normal life. Another example
is the regulation of business permits by the City Hall to prevent industrial
overcrowding, which can dampen the incentive to do business. In other words,
we pay taxes for the government to provide a better place where we can
exercise our freedom securely, fairly, and progressively.

55
 But taxes are yet our burden even as
we ultimately benefit from the public goods
and services we get in return. Taxes can
dampen the incentive to do business for the
benefit of society as they can eat up profit.
Pioneering businesses need some tax reliefs
in the early stage of market exposure when
profit is still lean. Taxes can also distort
savings, investment, and consumption as
income earners shift to substitute to avoid the
tax burden.
An example is the high tax on interest income, which drives income
earners to put their savings instead in individually lucrative but socially
unproductive real assets like jewelries, idle lands, and the like. Ideally, tax
benefit is maximized as its burden is minimized.
The main issue that hobbles the government to maximize tax benefit while
minimizing its burden is the shortfall of tax collections due to corruption. As tax
collection has even declined through the years, the budget deficit (spending
over tax revenue) has correspondingly worsened. What is worse is that the
government borrows from the public to make up for the deficit and stretch
government spending. Ultimately, repayment of public debts by drawing on the
government budget only crowds out spending especially on the more important
public goods and services. Shortfalls of tax revenues and government spending
can mean less road maintenance, books for the public schools, medical
services, and medicines for the poor, to name a few. On top of the shortfalls,
corruption misallocates spending on the not-so-important from the more
important public goods and services (Dinio, et al., 2017).

56
 What’s More

Activity 1.2.13 Check Your Understanding!

1. What are taxes for?

______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

2. What are the ultimate effects to society of shortfalls of tax collection?

______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

What Have I Learned

Activity 1.2.14 Sum Me UP

Based on the lesson, I have realized that ________________________

______________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________

57
 What I Can Do

Activity 1.2.15. Data Connection

Research on the dollar to peso exchange rate from the time of the presidency
of Diosdado Macapagal to the presidency of Noynoy Aquino. List down the
rates over the years and try to find reasons for abrupt increases or even
decreases in the exchange rate.

Additional Activities

Activity 1.2.16 Making It Count!

Enumerate 5 common public goods and services the government provides

from the taxes we pay. Are the benefits of these public goods and services
worth the taxes your parents pay? Explain.
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________

58
 Name:___________________________
SUMMATIVE Date:_________________ Section: _________
TEST Teacher: _____________ Score

Test I. Memory Recall

Directions. Write down the correct answer in the space provided.

______________1. A place where buyers and sellers interact and engage

in exchange.
______________ 2. Reflects the consumer’s desire for a commodity.
______________ 3. It is a condition of balance or equality.
______________ 4. A condition in the market where the quantity supplied
is more the quantity demanded.
______________ 5. The legal minimum price imposed by the government
on certain goods and services.
______________ 6. A general increase in prices and fall in the purchasing
value of money.
______________ 7. The price agreed by the seller to offer its goods or
services for sale and for the buyer to pay for it.
______________ 8. Refers to the competitive environment in which buyers
and sellers operate.
______________ 9. The specification by the government of minimum or
maximum prices for certain goods and services.
_____________ 10. Are compulsory contributions to support the State. It is
considered as the “lifeblood” of a government.

Test II. Computation

Directions: Solve for Equilibrium PE and QE. Show your Solutions in Simplest
Form.
1. QD = 2333 - 105P
QS = 599 + 2515P

2. Assume that the demand function is equal to:

QD = 5,000 - 1,000 P

59
 Where the price range is P1.00 to P5.00, derive the demand schedule
economics.

Price QD

Cho Assessment
Post-test

Directions. Read the test items carefully and encircle the letter of your
choice that best answers the statement.
1. There is scarcity of resources because:
A. Man’s wants are unlimited C. Man’s wants are enough
B. Man’s wants are limited D. Man’s wants are satisfied
2. An economic resource that includes the natural resources:
A. Land C. Capital
B.Labor D. Entrepreneur
3. Economics is a social science because it deals with:
A. Human nature C. Experimentation

60
 B. Natural resources D. Plants and animals
4. Another term used for equilibrium:
A. Stable C. Balance
B. Static D. None of the above
5. It is a finished product which is used to produce other goods:
A. Land C. Capital
B. Labor D. Entrepreneur
6. It reflects the desire of the consumer for a commodity:
A. Demand C. Market
B. Supply D. Supply schedul
7. In a market equilibrium, a higher price will result to:
A. Shortage C. Constant supply
B. Surplus D. Constant demand
8. Which of the following is true?
A. The supplies of inputs used affect the supply of a good.
B. The lower the price of the good, the smaller the quantity that will be
offered by the supplier.
C. The lower the price of the good, the bigger the quantity that will be
demanded by the buyer.
D. All the above are true.
9. The economic problems are answered predominantly through the price
mechanism and modified through government intervention:

A.Traditional system C. Market system

B.Command system D. Mixed system
10. The economic problem that refers to the nature of goods and services the
economy should produce:

A. What to produce C. How much to produce

B. How to produce D. For whom to produce
11. The market equilibrium for a commodity is determined by:
A. The market demand for the commodity

61
 B. The market supply of the commodity
C. The balancing forces of the demand and supply of the commodity
D. Any of these
12. If the cost of production of pork increases, supply will:
A. Increase C. remain constant
B. Decrease D. It depends
13. The following statements are correct except:
A. Authority to tax is inherent to every state.
B. Taxes are compulsory contributions to support the state.
C. Overseas workers cannot be taxed for their income earned abroad.
D. Taxation regulates the flow of income in an economic system.
14. A market structure that implies an ideal situation for the buyers and sellers.
A. Perfect competition C. Monopolistic competition
B. Monopoly D. Oligopoly
15. The biggest source of government funds:
A. Taxes C. Permits
B. Fines D. Revenues

62
 Department of Education
Region X

APPLIED ECONOMICS
Score
FIRST QUARTER EXAMINATION

Name: _______________________ Grade/Section: ___________ Date: __________

TEST I. MULTIPLE CHOICE: Read and analyze each item carefully. Write the letter
corresponding the best answer on your answer sheet.

1. There is scarcity of resources because:

A. Man’s wants are unlimited C. Man’s wants are enough

B. Man’s wants are limited D. Man’s wants are satisfied

2. An economic resource that includes the natural resources:

A. Land C. Capital

B. Labor D. Entrepreneur

3. Economics is a social science because it deals with:

A. Human nature C. Experimentation

B. Natural resources D. Plants and animals

4. The market equilibrium for a commodity is determined by:

A. The market demand of the commodity

B. The market supply of the commodity

C. The balancing forces of the demand and supply of the commodity

D. Any of these

5. Another term used for “equilibrium” is:

A. Deflation C. Growth

B. Static D. None of the above

63
6. Demand for smart phone increases despite the increase in price, is due to a change in:

A. Supply C. Demand

B. Quantity demanded D. None of the above

7. Single firms that sell in the market and have no close substitutes.

A. Perfect competition C. Monopolistic competition

B. Monopoly D. Oligopoly

8. Macroeconomics deals with the following except:

A. Gross National Product C. National Income

B. Employment D. Price of rice

9. Economics is important so that we may be able to:

A. Understand problems facing the citizens and family

B. Help the government promote growth and improve quality of life

C. Analyze fascinating patterns of social behavior

D. All the above

10. Income received by an entrepreneur:

A. Salary C. Interest

B. Rent D. Profit

11. Production decisions are made according to customs and traditions:

A. Traditional system C. Market system

B. Command system D. Mixed system

12. Man’s mental and physical efforts exerted in production:

A. Land C. Entrepreneur

B. Labor D. Capital

13. Payment made to labor:

A. Wage C. Profits

64
 B. Rent D. Interest

14. An economy where individuals exercise free enterprise:

A. Traditional system C. Market system

B. Command system D. Mixed system

15. The economic problem that refers to the nature of goods and services the economy should
produce:

A. What to produce C. How much to produce

B. How to produce D. For whom to produce

16. In a market economy, the basic economic problems are solved by:

A. The price mechanism

B. The elected representative of the people

C. A planning committee

D. The ancestors

17. Which of the following is not classifiable as a natural resource?

A. Land C. Minerals

B. Capital D. Forests

18. The dictator or a planning committee determines what to produce in a:

A. Market C. Command economy

B. Traditional economy D. Mixed economy

19. The following statements are correct except:

A. Authority to tax is inherent to every state

B. Taxes are compulsory contributions to support the state

C. Overseas workers cannot be taxed for his income earned in abroad

D. Taxation regulates the flow of income in an economic system

20. A market structure that implies an ideal situation for the buyers and sellers.

A. Perfect competition C. Monopolistic competition

B. Monopoly D. Oligopoly

65
Test II. TRUE or FALSE: Write TRUE in the space provided if the statement is correct and
FALSE if incorrect.

_____________ 1. A market is a mechanism of interaction between buyers and sellers

for trade or exchange. The consumer sells and the seller buys.

_____________ 2. The demand for a product is the quantity of a good that the buyers
are willing to buy at certain prices. A demand schedule shows the
different quantities that will be sold by the sellers given various
prices.

_____________ 3. A demand function shows how the quantity demanded of a good is

dependent on its determinants, the most important of which is the
price of the goods itself.

_____________ 4. One of the non-price determinants of demand is taste. Taste or

preference may vary from person to person.

_____________ 5. The consumers’ income does not influence the demand for goods
and services. The increase in demand due to an increase in income
is not experienced in the economy.

______________ 6. An increase in population results in a greater demand since there will

be more consumers as population increases.

______________ 7. The supply of a product is the quantity of goods that sellers are willing
to sell. The supply schedule shows the different quantities that will
be sold.

______________ 8. The demand curve is upward sloping to the right while the supply
curve is downward sloping.

______________ 9. When the income of the consumer increases it can shift the demand
curve upward to the right representing increase in demand.

______________10. Expectations as to future incomes and price may cause a shift of the
demand curve.

Test III. Computation: Based on the following functions for demand and supply, compute the
demand and supply schedules:

A. QD = 500 - 20P QS = 50 + 10P

Price Quantity Demanded Quantity Supplied

P 5.00

P 10.00

P 15.00

P 20.00

66
 P 25.00

B. Plot the above schedules on a single graph. Identify the equilibrium price and
equilibrium quantity.

C. Solve for Equilibrium PE and QE

1. QD = 2982 - 677P

QS = 659 + 3215P

2. QD = 169,712 - 22,893P

QS = 20,395P

67
 Answer Key

PRE-TEST

1. a 6. a 11. c
2. a 7. b 12. a
3. a 8. d 13. c
4. c 9. d 14. a
5. c 10. a 15. a

Activity 1.1.1 Think and Write

(answers may vary)

Activity 1.1.2 Word Search

M I C R O E C O N O M I C S R

A L M L K P A Z H K Q W O R O

R A A P R L R D L P U Y M T M

E N C E O M Q O L J B I M O A

N U D C E R A T D Q L P A Q C

T N Y O S P T X O U K J N H R

R A O N Q R P S W R C F D G O

E P L O U S S C F Y U T E D E

P P N M I L A B O R Z A I S C

R L E I N T R O X C C V B O O

E I W C E U F P K J L M D N N

N E G S C A R C I T Y K H M O

E D Z K S V E D A S D F A G M

68
 U E T A X P A Y E R Q R F W I
R Z N J U W M W U Y K T R E C

I G A H P A U I J E G I O P S

A A R D N X B K T N C X Z S Z

C B F B E Y J L I V B N M A Q

E A S T I N T E R E S T E V W

C R E S O U R C E S H W R E T

Activity 1.1.3. Check Your Understanding

(answers may vary)

Activity 1.1.4. Making It Count!

(answers may vary)

Activity 1.1.5. Making It Count!

(answers may vary)

Activity 1.1.6. Think and Reflect

(answers may vary)

Activity 1.1.7. I Can Do This!

(answers may vary)

Activity 1.1.8. Drawing Out the Artist in You!

69
 (answers may vary)

SUMMATIVE TEST

Test I. Memory Recall

1. Economics 6. Mixed economy

2. Applied economics 7. Capital
3. Macroeconomics 8. Microeconomics
4. Economic system 9. Basic needs
5. Scarcity 10. Labor

Test II. Identification

1. Labor 6. Capital
2. Land 7. Capital
3. Land 8. Labor
4. Land 9. Labor
5. Labor 10. Entrepreneur

Test III. Essay

(answers may vary)

Activity 1.2.1. Picture Analysis

(answers may vary)

70
Activity 1.2.2. Show Me The Plot 1

PRICE

QUANTITY

PRICE

QUANTITY

71
Activity 1.2.3. Sum Me UP

(answers may vary)

Activity 1.2.4. Show Me The Plot 2

PRICE

QUANTITY

Activity 1.2.5. Find My Match

1. d 6. h
2. a 7. k
3. f 8. b
4. g 9. e
5. i 10. j

Activity 1.2.6. Show Me The Plot 3

72
 PRICE

QUANTITY

Ep = P15.00 Eq = 600

Activity 1.2.7. Sum Me UP

(answers may vary)

Activity 1.2.8. Picture Analysis

(answers may vary)

Activity 1.2.9. Word Finder

1. OLIGOPOLY
2. MONOPOLY
3. COMPETITION
4. MONOPOLISTIC
5. MARKET

Activity 1.2.10. Sum Me UP

(answers may vary)

Activity 1.2.11. I Can Do This!

73
 (answers may vary)

Activity 1.2.12. Guess What

1. Department of Energy
2. Department of Foreign Affairs
3. Department of Trade and Industry
4. Department of Finance
5. Department of Labor and Employment

Activity 1.2.13. Check Your Understanding

(answers may vary)

Activity 1.2.14. Sum Me UP

(answers may vary)

Activity 1.2.15. Data Connection

(answers may vary)

Activity 1.2.16. Making It Count!

(answers may vary)

74
SUMMATIVE TEST

Test I. Memory Recall

1. Market 6. Inflation
2. Demand 7.Equilibrium market price
3. Equilibrium 8. Market structure
4.Surplus 9. Price control
5.Floor price 10. Taxes

Test II. Computation

1. PE = 0.662 QD = 2264 QS = 2264

2. Price QD
P1.00 4,000
P2.00 3,000
P3.00 2,000
P4.00 1,000
P5.00 0

POST-TEST

1. a 6. a 11. c
2. a 7. b 12. a
3. a 8. d 13. c
4. c 9. d 14. a
5. c 10. a 15. a

75
 References

Bangko Sentral ng Pilipinas. Treasury Department Reference Exchange Rate

Bulletin. July 30, 2020.

Dinio, Rosemary P. and George A. Villasis. Applied Economics. Manila,

Philippines. Rex Book Store, 2017.

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

Taxation and Cooperatives (A Modular Approach). Manila, Philippines.
Mindshapers Co., Inc. 2012.

Macrotrends. Philippine Inflation Rate (2010-2019) June 30,

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

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

Rex Book Store, 2006.

Philippine Statistics Authority. Survey on Overseas Filipinos. 2014

Philippine Statistics Authority. Philippine Unemployment Rate from 1999-

2019.
https://www.statista.com/statistics/578722/uemployment-rate-in-philip
pines/

Villegas, Bernardo M. Basic Economics. Manila, Philippines. Center for

Research and Communication Foundation, Inc., 2010.

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