APPLIED ECONOMICS – Quarter 1

NAME OF STUDENT: GRADE/SECTION:

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TEACHER: DATE SUBMITTED:
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I. INTRODUCTORY CONCEPT
The price of particular goods and services affects the behavior of the consumer. Most
often, when there is a price increase, the consumer’s reaction is not to buy the product but if
there is a decrease in price, the tendency of the consumer is to buy more of that particular
product (Law of Demand). This is also true on the part of the producer or seller, wherein if the
price is high, the tendency is to produce more but if the price is low, the tendency of the seller
or producer is to limit their production (Law of Supply). Thus, adjustment to prices on the part
of the seller or producer is deemed a vital decision. The seller must also know if the product
is elastic or not. We say that the goods are elastic if even a slight increase in price or no
increase in price affects significantly the quantity sold or purchased. While good is inelastic
when even if the price increases tremendously, the quantity sold or purchase is not deemed
much affected or no effect at all. In short, the Price Elasticity determines the steepness and
flatness of the demand and supply curve.

Let us apply the Concept of Price Elasticity of Demand.

The Price Elasticity of Demand can be calculated as:

%𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝐷𝑒𝑚𝑎𝑛𝑑𝑒𝑑

𝐸𝑝 =
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒

𝑄𝑑2 − 𝑄𝑑1
(𝑄𝑑2 + 𝑄𝑑1 )/2
𝐸𝑝 =
𝑃2 − 𝑃1
(𝑃2 + 𝑃1 )/2
Where:
𝐸𝑝 = 𝑃𝑟𝑖𝑐𝑒 𝐸𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 𝑜𝑓 𝐷𝑒𝑚𝑎𝑛𝑑
𝑄𝑑2 = 𝐹𝑖𝑛𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝐷𝑒𝑚𝑎𝑛𝑑𝑒𝑑
𝑄𝑑1 = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝐷𝑒𝑚𝑎𝑛𝑑𝑒𝑑
𝑃2 = 𝐹𝑖𝑛𝑎𝑙 𝑃𝑟𝑖𝑐𝑒
𝑃1 = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑃𝑟𝑖𝑐𝑒

RO_Applied Economics_SHS_Q1_LP4 1
 1. Unitary Elastic Demand Curve
In Unitary Elastic Demand Curve the proportion of change in demand is equal to
proportion of change in price. Thus, if the price of the goods increased from P1 to
P2, eventually the demand for the goods decreases from Q1 to Q2. For example, if
the price of cell phone rises to 10%, the quantity of cell phones demanded will be
reduced by 10%.

To compute for the Price Elasticity

Quantity Price
of Demand, select 2 pairs of Qs and Ps.
0 5 Let us say we get (2,3) and (3,2).
1 4
2 3 Given:
3 2 𝑄𝑑2 = 3 𝑃2 = 2
4 1 𝑄𝑑1 = 2 𝑃1 = 3
5 0
𝑸𝒅𝟐 − 𝑸𝒅𝟏
p (𝑸𝒅𝟐 + 𝑸𝒅𝟏 )/𝟐
𝑬𝒑 =
𝑷𝟐 − 𝑷𝟏
(𝑷𝟐 + 𝑷𝟏 )/𝟐
5
4 3−2
𝐸𝑝 =
2.5
3
2−3
2 2.5
0.4
𝐸𝑝 =
1 −0.4
𝐸𝑝 = | − 1|
q 𝐸𝑝 = 1
0 1 2 3 4 5

Interpretation:

The demand of consumer is truly dependent on the price of goods.Thus, the result of
Price Elasticity of Demand, Ep=1 is said to be unitary elastic where the change in quantity
demanded has equivalent proportionate change in the price. An example of this is the price
of pandesal at Villagomez store located in Panganiban that costs P1.00 per piece.The bakery
decided to increase their price to P1.50 per pandesal. The 50% increase in price of pandesal
leads to 50% decrease in quantity demanded for the pandesal.

2. Relatively Inelastic Demand Curve

In Relatively Inelastic Demand, the percentage change produced in demand is less than
the percentage change in the price of a product. Observing the graph, the price of the goods
increased from P1 to P2 and eventually the demand for the goods decreased from Q1 to Q2.
The proportionate change in price is more than the proportionate change in demand.

In the for gasoline for example, even if the price increases, still the quantity demanded for
gasoline is not affected much as it is needed in transporting goods and people.

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 Example: 100 To compute for the Price Elasticity of
Demand, select 2 pairs of Qs and Ps.
90
Let us say we get (20, 20) and (25, 0).
80
Given:
70 𝑄𝑑2 = 25 𝑃2 = 0
𝑄𝑑1 = 20 𝑃1 = 20
Quantity Price 60
0 100 𝑸𝒅𝟐 − 𝑸𝒅𝟏
5 80
50 (𝑸𝒅𝟐 + 𝑸𝒅𝟏 )/𝟐
𝑬𝒑 =
𝑷𝟐 − 𝑷𝟏
10 60 40 (𝑷𝟐 + 𝑷𝟏 )/𝟐
15 40 25 − 20
20 20 30 𝐸𝑝 =
22.5
25 0 20 0 − 20
10
10 . 22
𝐸𝑝 =
2
0
𝐸𝑝 = | − 0.11|
0 5 10152025
𝐸𝑝 = 0.11 𝑖𝑛𝑒𝑙𝑎𝑠𝑡𝑖𝑐

Interpretation:

The result of Elasticity of price 0.11 is said to be inelastic where the relatively small increase
in the quantity demanded has a proportionate large increase in price.

3. Relatively Elastic Demand Curve

In a Relatively Elastic Demand, when the percentage change in quantity demanded is
greater than the percentage change in price, the demand is said to be elastic. In other
words, relative changes in price caused relatively large changes in quantity demanded.

Quantity Price To compute for the Price Elasticity of Demand, select 2

0 5 pairs of Qs and Ps. Let us say we get (0, 5) and (2, 4).
2 4 Given:
4 3 𝑄𝑑2 = 2 𝑃2 = 4
6 2 𝑄𝑑1 = 0 𝑃1 = 5 Relatively small price
8 1 𝑸𝒅𝟐 − 𝑸𝒅𝟏 changes are
(𝑸𝒅𝟐 + 𝑸𝒅𝟏 )/𝟐 responsible for
10 0 𝑬𝒑 =
𝑷𝟐 − 𝑷𝟏
(𝑷𝟐 + 𝑷𝟏 )/𝟐 relatively large quantity
2−0 changes. In the table,
6 𝐸𝑝 =
1 for every P1.00
5 4−5 decrease change in
4.5 price, there will be an
4 2
𝐸𝑝 = additional 2 quantities
3 −0.22
𝐸𝑝 = | − 9.09| being added.
2
𝐸𝑝 = 9.09 𝑒𝑙𝑎𝑠𝑡𝑖𝑐
1
0
0 2 4 6 8 10

RO_Applied Economics_SHS_Q1_LP4 3
Interpretation:

The result which is 9.09 signifies relatively elastic demand where the large
increase in the quantity has a proportionate small increase in price.

One example of relatively elastic demand curve is suppose your family decided to
go to Manila from Virac, Catanduanes by plane. Upon looking at the website, their promo
price is P1,000.00 per passenger. However, you are not able to book a flight for five on
that moment. A week later, you decided to book again, but the fare now costs P1,500
per passenger. Thus, upon knowing the price, your family decided to ride in roro and bus
going to Manila. The abrupt change in price affects your family’s decision as to what
transportation to avail. An increase in the air fare will allow the traveller to choose another
transport mode like a car or to delay the holiday plan for the time being.
4. Perfectly Elastic Demand Curve

In a perfectly elastic demand, the percentage change in quantity demanded is infinite

even if the percentage change in price is zero. A good example of perfectly elastic are pizza,
bread, books and pencils. But luxury goods that take large share of individual’s income and
goods with many substitutes are like to have highly elastic demand curves.

Quantity Price 6

0 5
2 5 4
4 5
6 5
2
8 5
10 5
0
0 2 4 6 8 10

Interpretation:

To compute for the Price Elasticity of The result of Elasticity of price is infinity
Demand, select 2 pairs of Qs and Ps. and it is said to be perfectly elastic demand
Let us say we get (0,5) and (2,5). curve where the change in quantity does not
proportionately affect its change in price,
Given:
𝑄𝑑2 = 2 𝑃2 = 5
meaning, the price remains the same.
𝑄𝑑1 = 0 𝑃1 = 5
𝑸𝒅𝟐 − 𝑸𝒅𝟏 Examples of perfectly elastic demand are
𝑸𝒅𝟐 + 𝑸𝒅𝟏 those situations when the consumers are
𝑬𝒑 = 𝟐
𝑷𝟐 − 𝑷𝟏 extremely sensitive to price changes, where they
(𝑷𝟐 + 𝑷𝟏 )/𝟐 think of "all or nothing.”Thus, if a hotel decreased
2−0 its accomodation package to P5.00 (the amount
𝐸𝑝 =
1 demanded increased to an endless level) while if
5−5
5 the hotel accomodation package increased to
2 P500,000.00, no one will get the accommodation
𝐸𝑝 =
0 package, that is, the quantity demanded would
𝐸𝑝 = 𝑖𝑛𝑓𝑖𝑛𝑖𝑡𝑦, 𝑝𝑒𝑟𝑓𝑒𝑐𝑡𝑙𝑦 𝑒𝑙𝑎𝑠𝑡𝑖𝑐 decrease to zero.

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 5. Perfectly Inelastic Demand Curve

In a perfectly inelastic demand, quantity demanded for a good does not change in
response to a change in price.

Example:
To compute for the Price Elasticity of
Quantity Price Demand, select 2 pairs of Qs and Ps.
3 10 Let us say we get (3, 10) and (3, 8).
3 8 Given:
3 6 𝑄𝑑2 = 3 𝑃2 = 8
𝑄𝑑1 = 3 𝑃1 = 10
3 4
3 2 𝑸𝒅𝟐 − 𝑸𝒅𝟏
𝑸𝒅𝟐 + 𝑸𝒅𝟏
3 0 𝟐
𝑬𝒑 =
𝑷𝟐 − 𝑷𝟏
(𝑷𝟐 + 𝑷𝟏 )/𝟐
10
3−3
8 𝐸𝑝 =
3
8 − 10
6 9
4 0
𝐸𝑝 =
−0.22
2
𝐸𝑝 = 0, 𝑝𝑒𝑟𝑓𝑒𝑐𝑡𝑙𝑦 𝑖𝑛𝑒𝑙𝑎𝑠𝑡𝑖𝑐
1 2 3 4 5

Interpretation:

The result of Price Elasticity of Demand curve is 0, thus it is said to be perfectly

inelastic demand curve. Where the unchanged quantity of demand does not
proportionately affect its change in price. One example of Perfectly Inelastic Demand
Curve is the lifesaving drugs, which people pay at any cost to obtain that particular drug.
The change in quantity demanded would remain the same even the prices of the drugs
will change dramatically.

The table below describes the Concept of Demand Curve and effects in Price Elasticity.

DEMAND CURVE EFFECT IN PRICE ELASTICITY

Unitary Elastic Demand Curve
% Change in Price= % Change in quantity
Ep=1
Relatively Inelastic Demand Curve
% Change in Price > % Change in quantity
Ep˂1
Relatively Elastic Demand Curve
% Change in Price > % Change in quantity
Ep>1
Perfectly Elastic Demand Curve
Slope=Infinity
Perfectly Inelastic Demand Curve
Slope =0

Therefore, any change in price depends on the demand of the products or services
in the market. If the product is considered to be elastic, market pricing decision of the

RO_Applied Economics_SHS_Q1_LP4 5
 business may gradually increase or decrease depending on the acceptance of the market
in the product. If the products or services are inelastic, then the business can decide to
either pull it out or decide to expand more because of the aggressive acceptance of their
product in the market.
After the price elasticity of demand, we have also the price elasticity of supply
and similar with price elasticity of demand the price elasticity of supply determines
its steepness and flatness of curves.

The Price Elasticity of Supply has the following formula:

%𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝑺𝒖𝒑𝒑𝒍𝒊𝒆𝒅
𝑬𝒑𝒔 =
% 𝑪𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝑷𝒓𝒊𝒄𝒆
𝑸𝒔𝟐 − 𝑸𝒔𝟏
(𝑸𝒔𝟐 + 𝑸𝒔𝟏 )/𝟐
𝑬𝒑𝒔 =
𝑷𝟐 − 𝑷 𝟏
(𝑷𝟐 + 𝑷𝟏 )/𝟐
Where:
𝑬𝒑𝒔 = 𝑷𝒓𝒊𝒄𝒆 𝑬𝒍𝒂𝒔𝒕𝒊𝒄𝒊𝒕𝒚 𝒐𝒇 𝑺𝒖𝒑𝒑𝒍𝒚
𝑸𝒔𝟐 = 𝑭𝒊𝒏𝒂𝒍 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝑺𝒖𝒑𝒑𝒍𝒚
𝑸𝒔𝟏 = 𝑰𝒏𝒊𝒕𝒊𝒂𝒍 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝑺𝒖𝒑𝒑𝒍𝒚
𝑷𝟐 = 𝑭𝒊𝒏𝒂𝒍 𝑷𝒓𝒊𝒄𝒆
𝑷𝟏 = 𝑰𝒏𝒊𝒕𝒊𝒂𝒍 𝑷𝒓𝒊𝒄𝒆
1. Unitary Elastic Supply Curve

In Unitary Elastic Supply Curve, the proportion of change in quantity supplied is

equal to proportionate change in price. Thus, if the price of the goods increased
from P1 to P2, eventually the supply of the goods also increased from Q1 to Q2.

Example: If the price of cell phone increases by 10%, the quantity supplied of cell
phone also increases by 10%.
Given where:
Quantity Price 𝑄2 = 1 𝑃2 = 1
0 0 𝑄1 = 0 𝑃1 = 0
1 1 𝑸𝒔𝟐 − 𝑸𝒔𝟏
2 2 (𝑸𝒔𝟐 + 𝑸𝒔𝟏 )/𝟐
𝑬𝒑𝒔 =
3 3 𝑷𝟐 − 𝑷𝟏
4 4 (𝑷𝟐 + 𝑷𝟏 )/𝟐
5 5
1−0
𝐸𝑝𝑠 =
6 0.5
5 1−0
4 0.5
3
1−0
𝐸𝑝𝑠 =
2 0.5
1−0
1
0.5
0 𝐸𝑝𝑠 = 2/2 = 1 (𝑈𝑛𝑖𝑡𝑎𝑟𝑦 𝐸𝑙𝑎𝑠𝑡𝑖𝑐)
0 1 2 3 4 5

RO_Applied Economics_SHS_Q1_LP4 6
Interpretation:

The supply to consumer is truly dependent on the price of goods.The result of Price
Elasticity of Supply, Eps=1, is said to be a unitary elastic supply curve, wherein the change in
quantity is equivalent to the proportionate change in the price of supply of goods and services.
Thus, if the change in price of the camera will increase by 10%, the change of quantity supply
of camera will also increase by 10%.

2. Relatively Inelastic Supply Curve

In a Relatively Inelastic Supply, the percentage change in quantity supplied

changes by a lower percentage than the percentage of price change. Observing the
graph, the price of the goods increased from P1 to P2 and eventually the supply for
the goods increases from Q1 to Q2. In other words, the proportionate change in price
is more than the proportionate change in quantity supplied.

Example:

Quantity Price
Given where:
0 0 𝑄2 = 18 𝑃2 = 160
1 10 𝑄1 = 12 𝑃1 = 80
𝑸𝒔𝟐 − 𝑸𝒔𝟏
3 20 (𝑸𝒔𝟐 + 𝑸𝒔𝟏 )/𝟐
𝑬𝒑𝒔 =
𝑷𝟐 − 𝑷𝟏
7 40 (𝑷𝟐 + 𝑷𝟏 )/𝟐
12 80 18 − 12
𝐸𝑝𝑠 = 15
18 160 160 − 80
120
0.40
𝐸𝑝𝑠 =
0.67
𝐸𝑝𝑠 = 0.6; 𝑖𝑛𝑒𝑙𝑎𝑠𝑡𝑖𝑐

Interpretation:

The result which is 0.6 indicates that the Price Elasticity of Supply or 𝐸𝑝𝑠 < 1, and it is
said to be relatively inelastic supply curve where the relatively small change in the quantity
has a proportionate large changes in price. One of the examples of the goods or services
considered as relatively inelastic supply are the necessities such as water, electricity and
house rentals.

The necessity to have a decent home in highly urbanized areas is very likely to have
higher rental rates due to the overcrowded city population. Therefore, if you are the owner of
a town house, the fee you charge is expected to be probably higher. The same is true for the
electricity bill, which even the electricity company charges higher kilowatt price,the quantity of
kilowatt usage does not slow down abruptly because it is a necessity.

3. Relatively Elastic Supply Curve

In a Relatively Elastic Supply, the percentage change in quantity supply is greater
than the percentage change in price. In other words, relative changes in price caused
relatively large changes in quantity.

RO_Applied Economics_SHS_Q1_LP4 7
 Quantity Price
Given where:
0 0 𝑄2 = 32 𝑃2 = 5
𝑄1 = 16 𝑃1 = 4
2 1
𝑸𝒔𝟐 − 𝑸𝒔𝟏
4 2
(𝑸𝒔𝟐 + 𝑸𝒔𝟏 )/𝟐
𝑬𝒑𝒔 =
𝑷𝟐 − 𝑷𝟏
8 3 (𝑷𝟐 + 𝑷𝟏 )/𝟐

16 4

32 5 32 − 16
24 0.67
𝐸𝑝𝑠 = =
5−4 0.22
4.5
𝐸𝑝𝑠 = 3.01; 𝑒𝑙𝑎𝑠𝑡𝑖𝑐

Interpretation:
The result which is 3.01 indicates Price Elasticity of Supply or 𝐸𝑝𝑠 > 1, thus, it is said
to be a relatively elastic supply curve where the large change in quantity supplied has a
proportionate small percentage change in price.

4. Perfectly Elastic Supply Curve

In a perfectly elastic supply, the percentage change in quantity supply is infinite
even if the percentage change in price is zero.
Given where:
Example: 𝑄2 = 10 𝑃2 = 5
𝑄1 = 8 𝑃1 = 5
Quantity Price 𝑸𝒔𝟐 − 𝑸𝒔𝟏
0 5 (𝑸𝒔 𝟐 + 𝑸𝒔𝟏 )/𝟐
𝑬𝒑𝒔 =
𝑷𝟐 − 𝑷𝟏
2 5 (𝑷𝟐 + 𝑷𝟏 )/𝟐
4 5
6 5
8 5 10 − 8
𝐸𝑝𝑠 = 5
10 5
5−5
5
0.40
𝐸𝑝𝑠 =
0
𝐸𝑝𝑠 = 𝑖𝑛𝑖𝑓𝑖𝑛𝑖𝑡𝑦, 𝑝𝑒𝑟𝑓𝑒𝑐𝑡𝑙𝑦 𝑒𝑙𝑎𝑠𝑡𝑖𝑐

Interpretation:
The result of Elasticity of price is infinite, thus,it is said to be perfectly elastic supply
curve where the change of quantity in supply has no effect to price elasticity of price,
thus the price remains the same. A good example of perfectly elastic are pizza, bread,
books and pencils. But luxury goods that take large share of individual’s income and
goods with many substitutes are like to have highly elastic demand curves.

RO_Applied Economics_SHS_Q1_LP4 8
 5. Perfectly Inelastic Supply Curve
In a perfectly inelastic supply, quantity supply for a good does not change in
response to a change in price.
Given where:
Quantity Price 𝑄2 = 3 𝑃2 = 10
3 0 𝑄1 = 3 𝑃1 = 8
3 2
𝑸𝒔𝟐 − 𝑸𝒔𝟏
3 4 (𝑸𝒔𝟐 + 𝑸𝒔𝟏 )/𝟐
3 6 𝑬𝒑𝒔 =
𝑷𝟐 − 𝑷𝟏
3 8 (𝑷𝟐 + 𝑷𝟏 )/𝟐
3 10
3−3
𝐸𝑝𝑠 = 3
10 − 8
9
0
𝐸𝑝𝑠 =
0.22
𝐸𝑝𝑠 = 0
𝐸𝑝𝑠 = 𝑝𝑒𝑟𝑓𝑒𝑐𝑡𝑙𝑦 𝑖𝑛𝑒𝑙𝑎𝑠𝑡𝑖𝑐

Interpretation:

The result of Elasticity of price in supply curve is 0, thus, it is said to be perfectly inelastic
where the unchanged quantity of demand does not proportionately affect its change in price.
A perfect example of this supply would be a lifesaving drug that people will pay any price to
get that specific drug. Even if the price of the drugs will increase dramatically, the quantity
supply would remain the same.

The table below describes the Concepts of Supply Curve and effects in Price Elasticity.
SUPPLY CURVE EFFECT IN PRICE ELASTICITY

Unitary Elastic Supply Curve % Change in Price= % Change in quantity

Eps = 1

Relatively Inelastic Supply Curve % Change in Price > % Change in quantity

Eps ˂ 1

Relatively Elastic Supply Curve % Change in Price ˂ % Change in quantity

Eps > 1

Perfectly Elastic Supply Curve Eps=Infinity

Perfectly Inelastic Supply Curve Eps=0

RO_Applied Economics_SHS_Q1_LP4 9
 In analyzing equilibrium changes we shall assume the following scenarios:

1. An increase in Supply while Demand remains unchanged.

2. A decrease in Supply while Demands remains unchanged.
3. An increase in Demand while Supply remains unchanged.
4. A decrease in Demand while Supply remains unchanged.
5. An increase in both
6. A decrease in both.
7. An increase in Supply while Demand decrease.
8. A decrease in Supply while Demand increased.

1. Increase in Supply While Demand Remains Constant

An increase in the number of sellers shifts the supply curve to the right. If there’s a
lot of supplies of fish in the market for instance, the tendency of the seller is to sell their
fish at a lower price. This is also true when the harvesting season of Palay (rice that has
not been husked) where there is abundant rice in the market and the tendency of the
farmer or the producer is to lower their price.
From Point A where the initial equilibrium is
at 𝑃1 =80 and 𝑄1 =400 to Point B where the
A new equilibrium is at 𝑃2 =50 and 𝑄2 =600. An
80 increase in supply while demand remains
B constant results in a decrease in price of
50
rice for example from 80 𝑡𝑜 50 and an
increase in quantity from 400 𝑡𝑜 600

2. Decrease in Supply while Demand Remains unchanged

A decrease in supply while Demand remains unchanged shifts the supply curve to
the left. Suppose a cost of cake flour increased, what happens to the price and quantity of
cakes if demand remains constant? An increase in the cost of production in making cakes
will shift the supply curve to the left.

B From Point A where initial equilibrium is a𝑡 𝑃1 =

50 𝑎𝑛𝑑 𝑄1 = 600, to point B where the new
80 A equilibrium is at 𝑃2 = 80 𝑎𝑛𝑑 𝑄2 = 400. A
decrease in supply while demand remains
50
constant results in an increase in the price of
bread from 𝑃50 𝑡𝑜 𝑃80 and decrease in quantity
from 600 𝑡𝑜 400.

400 600

RO_Applied Economics_SHS_Q1_LP4 10
 3. Increase in Demand while supply remains constant
An increase in demand while supply remains unchanged shifts the demand curve
to the right. Suppose the average income increased, what happens to the quantity of smart
phones if supply remains constant? An increase in income will shift the demand curve to
the right.

B
12,000
A
10,000

From Point A where the initial equilibrium is at

𝑃1 = 10,000 𝑎𝑛𝑑 𝑄1 = 1,000 to Point B where
the new equilibrium is at𝑃2 =
12,000 𝑎𝑛𝑑 𝑄2 = 1,100. An increase in
demand while supply remains constant
results in an increase in Price of smart phones
and an increase in quantity from
1,000 𝑡𝑜 1,100.

4. Decrease in Demand while Supply remains Constant

A decrease in demand while supply remains unchanged shifts the demand curve
to the left. Suppose taste and preferences for Christmas decorations decline, what happens
to price and quantity of Christmas lanterns if supply remains constant?
A decline in taste and preference will shift the demand curve to the left.

From Point A where initial equilibrium is at

A 𝑃1 = 1,500 𝑎𝑛𝑑 𝑄1 = 500 to Point B where
1,500 // the new equilibrium is at𝑃2 = 800 𝑎𝑛𝑑 𝑄2 =
B 100. A decrease in demand while supply
800
remains constant will result in a decrease in
the Price of Lantern from 1,500 𝑡𝑜 800 and
decrease in its quantity from500 𝑡𝑜 100.

100 500

RO_Applied Economics_SHS_Q1_LP4 11
 5. Increase in Supply and Demand

Increase in Supply and Demand will shift the demand and supply curve to the
right. Suppose taste and preferences for domestic flights increased at the same time that
the cost of jet fuel rolled back, what happens to the price and quantity? A simultaneous
increase in supply due to a price rollback in fuel, and an increase in demand due to an
increase in income will result in a shift of demand and supply to the right.

A C
1,500
B
1,000

400 500 600

An increase in supply will initially decrease

price from 𝑃1 = 1,500 𝑡𝑜 𝑃2 = 1,000 and an
increase in quantity from𝑄1 = 400 𝑡𝑜 𝑄2 =
500. An increase in demand will bring the
price from 𝑃2 = 1,000 𝑡𝑜 𝑃1 = 1,500 though it
further increases quantity 𝑓𝑟𝑜𝑚 𝑄2 =
500 𝑡𝑜 𝑄3 = 600.

6. Decrease in Supply and Demand

Decrease in Supply and Demand will shift the demand and supply curve to the
left. Suppose taste and preferences for “Pugon Pandesal” decreased at the same time
that the cost of producing it increased, what happens to the price and quantity? A
simultaneous decrease in supply of bread due to increase in cost and a decrease in
demand due to decrease in taste and preferences will result in a shift of demand and supply
to the left.

A decrease in demand will initially decrease

price from 𝑃1 = 5 𝑡𝑜 𝑃2 = 3 and quantity
5 C A from 𝑄1 = 500 𝑡𝑜 𝑄2 = 400. An increase in
B cost of production will bring the price from
3
𝑃2 = 3 𝑏𝑎𝑐𝑘 𝑡𝑜 𝑃1 = 5 and further reduce
quantity from 𝑄2 = 400 𝑡𝑜 𝑄3 = 300.

300 400 500

RO_Applied Economics_SHS_Q1_LP4 12
 7. Decrease in Supply and Increase in Demand

Decrease in supply and an increase in demand. Suppose taste and preferences

for grapes increased at the same time that the cost of producing it increased, what happens
to the price and quantity? A decrease in supply of grapes due to an increase in cost will
shift the supply curve to the left while an increase in demand due to an increase in taste
and preferences will shift the demand curve to the right

C
400
B
300
A
250

50 100

A decrease in supply will initially increase

price from 𝑃1 = 250 𝑡𝑜 𝑃2 = 300 and
decrease quantity𝑄1 = 100 𝑡𝑜 𝑄2 = 50.
An increase in demand will further
increase price from 𝑃2 = 300 𝑡𝑜 𝑃3 = 400
but quantity will go back to 𝑄2 =
50 𝑡𝑜 𝑄1 = 100.

8. Increase in supply and Decrease in Demand

An increase in supply and a decrease in demand will shift the supply curve to
the right and demand curve to left. Suppose taste and preferences for pork decrease at
the same time that the cost of producing it decreased, what happens to the price and
quantity?
An increase in supply due to a decrease in cost shifts the supply curve to the right while a
decrease in demand die to a decline in taste and preferences shifts the demand curve to
the left.

An increase in supply will initially

200 decrease price from 𝑃1 = 200 𝑡𝑜 𝑃2 =
150 and increase quantity from 𝑄1 =
150
200 𝑡𝑜 𝑄2 = 300. A decrease in demand
100 will further decrease price from 𝑃2 =
150 𝑡𝑜 𝑃3 = 100 and will bring back the
quantity from 𝑄2 = 300 𝑡𝑜 𝑄1 = 200.

200 300

RO_Applied Economics_SHS_Q1_LP4 13
 Therefore, any change in price depends on the supply of the products or services in
the market.When the product is elastic, the decision of pricing of the business depends on
the acceptance of the public with their product. Thus, the possibility that the business will
offer discounts or promo is highly probable. However, if their products / services belong to
inelastic goods/services, the business will decide to etiher expand if the acceptance in the
market is probably high or tend to close if the acceptance in the market is not good.
Thus, elasticity is important for pricing decisions because it helps us understand
whether the increase in price or their decrease will affect the goal congruence of the
business. Thus, the company may have the option to strategize through offering a
discount that could boost their sales. Therefore, any price increase or decrease may lead
on the part of the business in losing many or only few buyers. That is why selecting the
most effective pricing strategy is very important.

COMPETENCY

Determine the implication of market pricing on economic decision making.

I. ACTIVITY
A. Identify Me!

Given the following information and conditions, determine what specific elasticity of
demand curve is shown by each of the table below. Write the correct answer in your
answer sheet.

Unitary Elastic Demand Relatively Inelastic Demand Relatively Elastic Demand

Perfectly Elastic Demand Perfectly Inelastic Demand

1. Quantity Price 2. Quantity Price

4 8 0 100
10 75
4 6
20 50
4 4
30 25
4 2
40 0
4 0

B. Calculate Me!

1. The price changes from P5.00 to P10.00 and the quantity changes from 30 to 20. What
is the price elasticity of demand?

2. The price elasticity of demand is -1.50. Price changes from P20.00 to P10.00. What is
the Percentage Change in Quantity?

RO_Applied Economics_SHS_Q1_LP4 14
 C. Match the following graph with the specific elasticity of demand curve. Write the letter
of the correct answer in your answer sheet.

1. 2. 3.
D.
E.
F.
G.
H.

I. 5.
4.
a. Unitary elastic demand curve
b. Relatively Inelastic Demand Curve
c. Relatively Elastic Demand Curve
d. Perfectly Elastic Demand Curve
e. Perfectly Inelastic Demand Curve

D. Given the following information, compute the elasticity of price and identify what specific
price elasticity of supply it belongs.

Unitary Elastic Supply Relatively Inelastic Supply Relatively Elastic Supply

Perfectly Elastic Supply Perfectly Inelastic Supply

1. Quantity Price 2. Quantity Price

4 2 10 100
4 4 20 200
4 6 30 300
4 8 40 400
4 10 50 500
E. Identify what specific demand curve is being illustrated in each of the following:
1. 2. 3.

3. 5.
a. Unitary elastic supply curve
b. Relatively Inelastic Supply Curve
c. Relatively Elastic Supply Curve
d. Perfectly Elastic Supply Curve
e. Perfectly Inelastic Supply Curve

RO_Applied Economics_SHS_Q1_LP4 15
 F. Direction: Identify the market pricing implication in of the following
graphs and explain.

1 2

3
4

II. RUBRIC FOR SCORING

CRITERIA Extent of Work Performed Points
5 4 3 2 Earned
Content Appropriate Appropriate Appropriate Appropriate
content is used content is used content may be content is not
for each for each used. Student observed.
challenge challenge shows little Student does
problem. problem. understanding not demonstrate
Student clearly Student shows of the an
understands some mathematical understanding
the understanding concepts. of the
mathematical of the mathematical
concepts. mathematical concepts.
concepts.
Organization The challenge The challenge The challenge The challenge
problem is problem is problem is not problem is not
written in clear written in clear written in in written in clear
and coherent and coherent clear and and coherent
language. It is language. It is coherent language, or
easy to follow easy to read language. It is may not be
and read. most of the easy to follow observed. It is
time. and read some difficult to read
of the time. and follow.
Mechanics Proper Proper Proper Proper
language, language, language, language,
capitalization capitalization capitalization capitalization
and and punctuation and punctuation and punctuation
punctuation are present with may be used, are not
are present no more than but more than observed.
with no two mistakes. two mistakes.
mistakes.

RO_Applied Economics_SHS_Q1_LP4 16
 III. ANSWER KEY
A. 1. Ep=0, it is perfectly inelastic
2. Ep> 1, it is relatively elastic
B. 1. Ep=/-.60/= 0.60
2.% Change in Quantity = 1
C. 1.D 2. E 3. B 4. A 5. C
D. 1. Eps=0, it is perfectly inelastic 2.Eps=1, it is unitary elastic supply
E. 1. D 2.E 3. A 4. C 5. B
F 1. Increase in demand, supply remains constant.
2. Decrease in supply, demand remains constant
3. Decrease in demand, supply remains constant
4. Decrease in supply, demand remains constant

IV. REFLECTION
In this part of the learning activity sheet, you are expected to express your thoughts and
reflections by answering the following questions below.
1. Which part of the lesson is very easy for you? Why?
2. Which part of the lesson is very difficult for you? Why?
3. How did you find the lesson? Did you learn something in this lesson?

V. REFERENCES

Manapat, Carlos, C & E Publishing, Inc.(2018), Applied Economic for Senior High
School.

https://courses.lumenlearning.com/clinton-marketing/chapter/outcome-price-
elasticity/

https://sites.google.com/site/economicsbasics/relatively-elastic-demand

https://www.economicsdiscussion.net

https://www.investopedia.com

https://courses.lumenlearning.com/suny-macroeconomics/chapter/reading-polar-
cases-of
elasticity/#:~:text=When%20consumers%20are%20extremely%20sensitive,of%2
0cruises%20to%20the%20Caribbean

RO_Applied Economics_SHS_Q1_LP4 17
 Development Team of Learner’s Packet

Writer: Roselle P. Collantes-Panganiban National High School,CC

Illustrator & Layout Artist:
Jhon Paulo M. Gianan – Catanduanes National High School
Javine M. Tolledo – Catanduanes National High School
Language Editors:
Ma. Elena V. Carullo - Panganiban National High School,CC
Anne Marionne A. Osila – Catanduanes National High School
Content Editors:
Jezrahel T. Omadto – CID- EPS- Mathematics
Carol P. Gil – MT I / OIC ASP II Catanduanes National High School
Shinette T. Oliveros – Teacher II Catanduanes National High School

RO_Applied Economics_SHS_Q1_LP4 18