Applied Economics, M3 (Week 5 & 6)

Mt. Carmel College of San Francisco, Inc.
8501, San Francisco, Agusan del Sur, Philippines

Tel. No. (085) 839-2161 • e-mail: mccsf.registrarsoffice@gmail.com
SENIOR HIGH SCHOOL LEVEL

School Year 2020-2021
Subject Applied Economics

Grade Level Grade 11 Section
Semester First Semester Quarter 1
Module No. 03 Chapter No. 2
Lesson No. 03 Date Week 5 & 6
Content The learner demonstrates an understanding of economics as applied science

Standard and its utility in addressing the economic problems of the country.
Performance The learner shall be able to analyze and propose solution/s to the economic
Standard problems using the principles of applied economics.
Learning The learner differentiates economics as social science and applied science in
Competencies terms of nature and scope.
At the end of the lesson, the learners will be able to:

Specific
1. explain what is demand and supply.
Learning
2. explain the law of supply and demand.
Outcomes
3. illustrate how equilibrium price and quantity are determined
4. distinguish between elastic and inelastic demand and supply
Applied Economics - First Semester, SY 2020-2021 |1

Introduction
In a general sense, economics is the study of production, distribution, and consumption

and can be divided into two broad areas of study: macroeconomics deals with aggregate
economic quantities, such as national output and national income. Macroeconomics has its
roots in microeconomics, which deals with markets and decision making of individual economic
units, including consumers and businesses. Microeconomics is a logical starting point for the
study of economics.
The economic problem of scarcity which has been widely articulated in the previous
module calls for an allocation mechanism in light of limited resources and expanding human
wants. A popular mechanism for distribution being utilized by many economies today is the
market system. A market system is a powerful tool for distribution because the changes in price
from market transactions create incentives and disincentives on buyers and sellers to address
disparities between demand and supply. The instrument of distribution is the market price which
is determined by the interaction of the buyers and sellers in any market. These interactions of
the market players are summarized in the analysis of demand and supply
Having grasped the tools and concepts presented in this module, the reader should also
be able to understand many important economic relations and facts and be able to answer
questions, such as:
1. Why do consumers usually buy more when the price falls? Is it irrational to violate this
“law of demand”?
2. What are the appropriate measures of how sensitive the quantity demanded or supplied
is to changes in price, income, and prices of other goods? What affects those sensitivities?
3. If a firm lowers its price, will its total revenue also fall? Are there conditions under which
revenue might rise as price falls and what are those? Why?
4. What are the economic reasons why the demand curve is downward sloping?
5. What are the economic reasons why the supply curve is upward sloping?

Pre-Activity
As part of your initial activity, you will be challenged to dig deeper into your knowledge and
previous experiences on the topic. Try to diagnose or assess what you already know about
demand and supply by answering the questions below.
Task 1: Multiple-Choice
Direction: Indicates the effects of the given statements on the demand and supply of a good
based on the following outcomes. Write the phrase of your choice on the answer
sheets provided.
a. Shift to the right

b. Shift to the left
c. No change
1. Well-received market innovation of a new cellphone.

Demand of cellphone ________________
Supply of cellphone ________________
2. Decrease in the price of good X

Demand for good X ________________
Supply for good X ________________
3. Improved technology in the manufacturer of appliances

Demand for appliance ________________
Supply for appliance ________________
4. Entry of sellers in the market for electronic gadgets

Demand for electronic gadgets ________________
Supply for electronic gadgets ________________
5. New discovery of gold mines in the country

Demand for gold ________________
Supply for gold ________________

6. New investments in the manufacturing of shoes

Demand for shoes ________________
Supply for shoes ________________
7. Migration of Filipinos to first world countries

Demand for basic commodities ________________
Supply for basic commodities ________________
8. Government increase worker’s wages

Demand for basic commodities ________________
Supply for basic commodities ________________
Basic Principles of Demand and Supply
The Market
A market is an interaction between buyers and sellers of trading or exchange. It is

where the consumer buys and the seller sells. The good market is the most common type of
market because it is where we buy consumer goods. The labor market is where workers offer
services and look for jobs, and where employers look for workers to hire. There is also the
financial marker which includes the stock market where securities of the corporation are
traded.
The market is important because it is where a person who has excess goods can
dispose of them to those who need them. This interaction should lead to an implicit
agreement between buyers and sellers on volume and price. It a purely competitive market
(similar product), the agreed price between a buyer and seller is also the market price or price
of all.
What is Demand?
Demand is an economic principle referring to a consumer's desire to purchase goods

and services and the willingness to pay a price for a specific good or service. Holding all other
factors constant, an increase in the price of a good or service will decrease the quantity
demanded, and vice versa. Market demand is the total quantity demanded across all
consumers in a market for a given good. Aggregate demand is the total demand for all

goods and services in an economy. Multiple stocking strategies are often required to handle
the demand.
Demand function shows how the quantity demanded of a good depends on its
determinants, the most important of which are the prices of the good itself, thus, the
equation:
Qd = f (P)
This signified that the quantity demanded for a good is dependent on the price of that
good. Presented in Table 1.1 is a hypothetical monthly demand schedule for vinegar (in
bottles) for one individual, Martha. The quantity demanded is determined at each price with
the following demand function:
Qd = 6 – P/2
Table 1.1 Hypothetical Demand Schedule of Martha for Vinegar (in bottles)
Price per bottle Number of Bottles

Php 0 6
Php 2 5
Php 4 4
Php 6 3
Php 8 2
Php 10 1
At a price of Php 10 per bottle, Martha is willing to buy one bottle of vinegar for a
given month. As the price goes down to Php 8, the quantity she is willing to buy goes up two
bottles. At a price of Php 2, she will buy five bottles. There is a negative relationship between
the price of a good and the quantity demanded that good. A lower price allows the
consumer to buy more, but as price increases, the amount the consumer can afford to buy
tends to go down.
The demand curve is a graphical illustration of the demand schedule, with the price
measured on the vertical axis (Y) and the quantity demanded measured on the horizontal axis
(X). The values are plotted on the graph and are represented as connected dots to derive the
demand curve (Figure 1.1). The demand curve slopes downward indicating the negative
relationship between the two variables which are price and quantity demanded.

12
10
8
Price
0
0 1 2 3 4 5 6 7
Quantity Demanded (In Bottles)
Figure 1.1 Hypothetical Demand Curve of Martha for Vinegar (in bottles) for One Month
The downward slope of the curve indicates that as the price of vinegar increases, the
demand for this good decreases. The negative slope of the demand curve is due to income
and substitution effects.
The Income effect is felt when a change in the price of good changes consumer’s real
income or purchasing power, which the capacity to buy with a given income. In other words,
purchasing power is the volume of goods and services one can buy with his/her income. If a
good becomes more expensive, real income decreases and the consumer can only buy fewer
goods and services with the same amount of money income. The opposite holds with a
decrease in the price of a good and increase in real income.
The Substitution effect is felt when a change in the price of a good changes demands
due to alternative consumption of substitute goods. For example, lower price encourages
consumption away from higher-priced substitutes on top of buying more with the budget
(income effect). Conversely, the higher price of a product encourages the consumption of its
cheaper substitutes further discouraging demand for the former already limited by less
purchasing power (income effect).

Law of Demand
After observing the behavior of price and quantity demanded in the above schedule,
we can now stat the Law of Demand. Using the assumption “ceteris paribus,” which means all
other related variables except those that are being studied at the moment and are held
constant, here is an inverse relationship between the price of a good and the quantity
demanded that good. As price increases, the quantity demanded of that product decreases.
The low price of the goods motivates the consumer to buy more. When the price increases,
the quantity demanded of that good decreases.
Non-Price Determinants of Demand
If the ceteris paribus assumption is dropped, non-price variables that also affect
demand are now allowed to influence demand. These non-price factors include income, taste,
expectations, prices of related goods, and population. These non-price determinants can
cause an upward or downward change in the entire demand for the product and this change
is referred to as a shift of the demand curve.
The demand function will now read D = f (P, T, Y, E, PR, NC), which states that demand
for a good is a function of Price (P), Taste (T), Income (Y), Expectations (E), Price of Related
Goods (PR), and Number of Consumers (NC). Factors other than the price of the product are
the non-price factors of demand.
If consumer income decreases, the capacity to buy decreases and the demand will also
decrease even when price does remain the same. The opposite will happen when income
increases.
Improved taste for a product will cause a consumer to buy more of that good even if
its price does not change.
Another non-price determinant is the consumer’s expectation of future price and

income. Consumers tend to anticipate changes in the price of a good. For example, motorists
are always on the lookout for changes in oil prices. When gasoline prices are expected to
increase, motorists tend to fill up their gas tank before the price increase; the oil demand will
shift upward. But when a rollback is expected at oil prices, consumers will delay their
purchases and wait for prices to decrease.

Price of related goods as substitute or complements also determine demand.

Substitute goods are those that are used in place of each other, like butter and margarine
and sugar and artificial sweetener. In the case of substitute goods, an increase in the demand
for one good lead to a decrease in the demand for the other good. So, if the price of good
increases, the demand for that good will be decreased, while the demand for its substitute
will increase. Complements are goods that are used together, such as a cellphone and sim
card, a car and car tires, and coffee and creamer. For complementary goods, an increase in
the demand for that good will be lead to an increase in the demand for the complement
since they are used together. Thus, if the price of a good increase, the demand for it will
decrease and the demand for its complement will likewise decrease.
On the other hand, the number of consumers is also an important determinant that
will affect market demand for a good. The population makes up a group of consumers who
will buy the product. The higher the population the more consumers and the higher will be
the demand for the good. The effect of an increase in the number of consumers is a
rightward shift of the demand curve and should the opposite happen, that is, if a decrease in
the number of consumers takes place due to out-migration, this will be reflected in a leftward
shift of the demand curve.
Shifts of the Demand Curve
When a change in the price of a good cause the quantity demanded that good to
change, this is illustrated on the same demand curve and is simply a movement from one
point to another on that curve. For example, if price foes down from Php 5 to Php 4, the
quantity demanded will increase from 10 to 15 pieces, this is illustrated on the same demand
curve. But if the change in demand is caused by a non-price determinant, this will involve a
change in the entire demand curve. For example, the demand curve will shift to the right to
reflect an increase in demand or to higher income and to the left to show a decrease in
demand due to less income.

Figure 2.2, one can see that originally, at an unchanged price, the quantity that Manuel
will buy is more. Even if the price remains unchanged, an increase in say, preference, will
cause Manuel’s demand to increase per week. In the same manner, at various prices, demand
increases at each price level due to a greater preference for steak. These higher quantities are
depicted on the new demand curved of Qs2. What happed in Figure 2.2 is a rightward shift of
the entire demand curve.
On the other hand, should the population increase, the market demand curve
representing the totality of all consumer’s demands will shift to the right. In other words,
there will be more mouths to feed demanding more goods on the same budget and price.
What is Supply?
Demands show us the side of the consumers and their reactions to changes in price
and other determinants. We now look at the side of the supplier.
Supply refers to the number of goods that a seller is willing to offer for sale. The
supply schedule shows the different quantities the seller is willing to sell at various prices. The
supply function shows the dependence of supply on the various determinants that affect it.
Assuming that the supply function is given as Qs = 100 + 5P and is used to determine
the quantities supplied at the given prices.

Price of Fish (per Kilo) Supply (in Kilos)
Php 20 200
Php 40 300
Php 60 400
Php 80 500
Php 100 600
As can be seen in Table 2.2, the relationship between the price of fish and the quantity
that Pedro is willing to sell is direct. The higher the price, the higher the quantity supplied.
When plotted into a graph, we obtain the supply curve.
We derive a supply curve that is upward sloping, indicating the direct relationship
between the price of the good and the quantity supplied of that good.
Applied Economics - First Semester, SY 2020-2021 | 10

The Law of Supply
After observing the behavior of price and quantity supplied in the above schedule, we
can now stat the Law of Supply. Using the same assumption “ceteris paribus,” (other things
constant) there is a direct relationship between the price of a good and the quantity supplied
of that good. As the price increases, the quantity supplied of the product also increases. The
high price of the good serves as motivation for the seller to offer more for sale. Thus, when
the price increases, the quantity supplied of the good increases since the seller will take as an
opportunity to increase his/her income.
Non-Price Determinants of Supply
In the above analysis (Figure 2.3), the only factors that vary are price and quantity
demanded. However, in real-life, supply is influenced by factors other than price. These
factors are assumed constant to simplifying the study of the relationship between price and
the quantity supplied.
If the assumption of ceteris paribus is dropped, non-price variables are now allowed to
influence supply. These non-price factors are the cost of production, technology, and
availability of raw materials and resources. These non-price determinants can cause an
upward or downward change in the entire supply of the product, and this change is referred
to as a shift of the supply curve.
The shift of the Supply Curve
Just like in the case of demand, there are also movements along and shifts of the
supply curve. In the curve in Figure 2.3, what are see are changes in the quantities supplied
due to different prices of fish. These changes are reflected on a single supply curve and are
changes from one point to another point on the same curve. This is referred to as a
movement along the supply curve. The reason for a movement along the supply curve is the
change in the price of the goods. Once supply increase due to a non-price determinant, the
entire supply curve will shift to the right of the good. Once supply increases due to a non-
price determinant, the entire supply curve will shift to the right to reflect an increase, or to
the left to reflect a decrease as shown in Figure 2.4.

The supply function will now read S = f (P, C, T, AR), where the Supply (S) of a good is
a function of the price of that good (P), the cost of production (C), technology (T), and the
availability of raw materials and resources (AR).
As a non-price determinant, the cost of production refers to the expenses incurred to

produce the good. An increase in cost will normally result in a lower supply of the goods
even when the price will not change since the producer has to shell out more money to come
up with the same amount of output. With the same budget and higher cost, the producer will
only produce a smaller amount of the good, and therefore, the supply of the good in the
market will decrease. This is reflected in a rightward shift of the supply curve from S1 to S2 in
Figure 2.4.
Technology is another significant non-price determinant of demand. The use of

improved technology in the production of goods will result in an increased supply of that
good. On the other hand, the use of obsolete or improper technology in production will
result in a downward shift in the supply curve from S1 to S2.
Another possible non-price determinant of supply that can cause an upward shift of
the curve form S2 to S1 is through improved availability of raw materials and resources. Since
more resources can be used to produce a bigger output of the good, then supply increases.

The leftward shift of the curve indicates a decrease in supply and the rightward shift
indicates an increase in supply.
In Figure 2.4, we see the shift in the supply curve of fish due to a change in a non-price
determinant. For example, the effect of an increase due to improved technology in catching
fish leads to a rightward shift of the supply curve to S2 which means the suppliers will sell
more fish for the same price.
Market Equilibrium
If the forces of demand and supply operate together, we can show how the price is
determined in a market economy. Alfred Marshall, a British economist, defined the Law of
Demand and Supply.
Equilibrium is a state of balance when demand is equal to supply. Equality means that
the quantity that sellers are willing to sell is also the quantity that buyers are willing to buy
for a price. As a market experience, equilibrium is an implicit agreement between how much
buyers and sellers are willing to transact. The price at which demand and supply are equal is
the equilibrium price. In Figure 2.5, market equilibrium is attained at the point of intersection
of the demand and supply curves.

In Figure 2.5, the price of a good in the market is the equilibrium price. It is the price at
which the quantity demanded is equal to the quantity supplied. This is how most
commodities in the market are priced by their producers or sellers.
Determination of Market Equilibrium
Market equilibrium is attained when the quantity demanded is equal to the quantity
supplied.
Assuming that the demand function for Good X is: Qd = 60 – P/2 and the supply
function for Good X is: Qs = 5 + 5P.
Applying the equations, we derive the following demand and supply schedules given
the following prices:
Demand Schedule of Price Good X Supply Schedule of Good X
Php 0 60 5
Php 2 59 15
Php 4 58 25
Php 6 57 35
Php 8 56 45
Php 10 55 55
Php 12 54 65
Php 14 53 75
Php 16 52 85
Equilibrium quantity is attained where Qd = Qs

Equilibrium quantity is 55 since quantity supplied and quantity demanded are both 55 at
the price of Php 10, which is the equilibrium price.
Example of Determination of Market Equilibrium
Assume a demand and a supply function as the following:
P = 50 – 2Qd (Demand) P= 20 + 4Qs (Supply)
Where
P = price Qd = Demand Qs = Supply in thousands
The demand curve is downward sloping with the negative slope – 2 while the supply
curve is upward sloping with positive slope 4. At equilibrium, the price at which buyers are
willing to buy a certain volume is also the price at which sellers are willing to sell the same
volume. Thus, for the same price, buyers are willing to buy while sellers are willing to sell
the same volume. To computer equilibrium Price (P) and Quantity (Q) we have to equate
the demand and supply functions, as follows:
50 - 2Qd = 20 + 4Qs
At equilibrium, P = 40 and Q = 5 as illustrated by the demand-supply schedule and graph

below.

Assume a demand and supply function, as follows:
P = 50 – 2Qd (Demand) P = 20 + 4Qs (Supply)
P = Price Qd = Demand 4Qs = Supply in thousands
D S P
48 54 1
46 28 2
44 32 3
42 36 4
40 40 5
38 44 6
36 48 7
34 52 8
32 56 9
30 60 10
Elasticities of Demand and Supply
We have learned how demand and supply respond to changes in their determinants.
Goods, however, differ in terms of how demand and supply respond to changes in these
determinants. The degree of their response to a change is referred to as elasticity. Elasticity is
a measure of how much buyers and sellers respond to changes in market conditions.
The coefficient of elasticity is the number obtained when the percentage change in
demand is divided by the percentage change in the determinant.
In term of how responsive demand and supply are, degrees of elasticity may either be:
1. Elastic – a change in a determinant will lead to a proportionately greater change in

demand or supply. The absolute value of the coefficient of elasticity is greater than 1.
If the price of LPG increases by 10% and as result, the quantity demanded goes down
by 12%, then we say that the demand for LPG is elastic.
2. Inelastic – a change in a determinant will lead to a proportionately lesser change in

demand or supply. The absolute value of the coefficient of elasticity is less than 1.
Suppose the price of cellphone load goes up by 5% and the quantity demanded goes
down by 3%, then we can say that the demand for cellphone load is inelastic.

3. Unitary Elastic – a change in a determinant will lead to a proportionately equal change

in demand or supply. The absolute value of the coefficient of elasticity is equal to 1.
Let us say that the price of string bean goes down by 6% and as a result, the quantity
demanded goes up by 6% also, we describe the demand for string bean as unitary
elasticity.
Elasticity of Demand
Three types of elasticity of demand that deal with the responses to a change in the
price of the good itself, in income, and in the price of a related good, which is a substitute or
a compliment.
Price Elasticity of Demand
This measures the responsiveness of demand to a change in the price of the goods.
The concept of elasticity is measured in percentage changes. The value of price elasticity may
be measured in two ways.
1. Arc Elasticity – the value of elasticity is computed by choosing two points on the
demand curve and comparing the percentage changes in the quantity and the price
on those two points. The computation of arc elasticity makes use of the following
formula:
Ep = {(Q2-Q1)/(Q2+Q1/2)} /{(P2-P1)/P2+P1/2)}
Where:
Q2 = new quantity demanded
Q1 = original quantity demanded
P2 = New price of the good
P1 = original price of the good
Normally, the coefficient of the price elasticity of demand has a negative sign
because it reflects the inverse relationship between price and the quantity demanded.
The size of the coefficient, regardless of the negative sign, will signify the nature of the
good involved. When price elasticity of demand is greater than 1, this signifies that the
demand is elastic since the percentage change in the quantity demanded is greater

than the percentage change in price. Therefore, the good is non-essential since
consumers will respond greatly to a change in price. When price elasticity of demand
is less than 1, this signifies that demand is inelastic since the percentage change in
quantity demanded is less than the percentage change in price. Therefore, the good is
essential since consumers will show a slight response to a change in price. When the
coefficient of price elasticity is equal to 1, the demand for the product is unitary
elastic, suggesting proportionate changes in quantity demanded and the price of the
good.
2. Point Elasticity – measures the degree of elasticity on a single point on the

demand curve. Changes on the single point are infinitesimally small.
Ep = {(Q2-Q1)/Q1} / {(P2 – P1)/P1}
Price elasticity is important to the seller since it gauges how fare demand can
change relative to price. The price elasticity of demand measures how far
consumers are willing to buy a good especially when its price rises reflective of
the economic, social, and psychological force shaping consumer preference.
Income Elasticity of Demand
This measures how the quantity demanded changes as consumer income changes.
Income Elasticity of Demand is equal to (% change in quantity demanded)/(% change in
income)
A positive (+) sign for IE signifies that the good demanded is a normal good, which is
what a consumer tends to buy more when his income increases. This is true for steak, pizzas,
and luxury items. The negative (-) sign for IE indicates the demand for inferior goods, which
are good that are bough when incomes are low because low incomes prevent the consumers
from buying higher-priced goods.
Cross Price Elasticity of Demand
This measures how quantity demanded changes as the price of a related good change.
Cross elasticity (CE) measures the responsiveness of the demand for a good to the change in
the price of a substitute good or a compliment. Earlier in this module, we discussed what

substitute goods are and what are complement is. A+ (positive) sign for CE signifies that the
two goods involved are substitute goods which means that as the price of the substitute
good increases, the demand for the other goods will increase. This is true for rice and bread,
which are substitute goods. If the price of bread goes up, consumers will substitute rice for
bread; thus, the demand for rice increases. The – (negative) sing for CE indicates that the two
good are complements, which means that the demand for goods will increase when the price
of a complement decreases. On the other hand, CE for cellphones and cellphone loads is
negative. Since these two goods are used together, the price of one will affect the demand
for the other. If the price of cellphone load increases significantly, the demand for cellphones
will tend to decline.
Price Elasticity of Supply
Concerning supply, price elasticity of supply determines whether the supply curve is
steep or flat. A steep curve signifies a high degree of elasticity or ability to change, with a flat
curve indicates an inability to change in response to a change in the price of the good. Goods
that are easy to produce have elastic supply while those which need a long time to produce
and which are hard to make have elasticity supply.

To firm up what you have learned and to have a better appreciation of the different
nature and scope of applied economics, then answer the questions below.
Task 1:
A. Using the following demand function, solve for the demand schedule of consumer Robert
given the following prices for bottled water.
Qd = 60 – P/2
Prices Qd
Php 0
Php 2
Php 4
Php 6
Php 8
Php 10
Php 12
Php 14
Php 16
 Based on this schedule, construct a demand curve for Robert.

B. On the other hand, for Rudolph, a seller of bottled water in the market, the supply
function is given as:
Qs = 5 + 5P
Prices Qs
Php 0
Php 2
Php 4
Php 6
Php 8
Php 10
Php 12
Php 14
Php 16
 Construct the supply curve for Rudolph and put it in a graph with Robert’s
demand curve.
 Assuming that Rudolph is the only seller and Robert is the only buyer in the
market, identify the equilibrium price and quantity.

Task 2: True or False
Directions: Write TRUE if the statement is correct and FALSE incorrect. Write your answer
before the number
_____________________ 1. The upward slope of the supply curve illustrates the law of demand –
“higher price lead to a higher quantity supplied, and vice versa.”
_____________________ 2. The downward slope of the demand curve illustrates the law of supply
the inverse relationship between prices and quantity demanded.
_____________________ 3. Time is important to supply because suppliers must react quickly to a

change in demand or price.
_____________________ 4. A shift in a demand or supply curve occurs when quantity demanded

or supplied changes even though price remains the same.
____________________ 5. The law of supply says that “at higher prices, sellers will supply more
of economics goods”.
Reflection
Our case today can be compared to our topic. Let us understand that everything has
limitations in our consumption – our basic needs like food, shelter, and water. Even our
consumption on the mode of transportation has a limitation.
The challenge to us, consumers, is how we make use of our imitative, and utilize our
income to satisfy our demands at the most affordable prices; for the sellers to supply the
needs of the consumers while making a profit; for the government to legislate the economy
while helping all the agents and to protect the monetary and fiscal transactions.
As a consumer, how can you sustain your needs (basic commodities) despite the
challenges in the increased price of these items in the market?

Summary
In this module, we have seen the usefulness of a very simple economic framework of
demand and supply analysis. This framework which is derived and developed in the previous
module has numerous applications in understanding the contemporary business, economic and
social issues.
References:
Books
 Dinio, Rosemary P., Ph.D., Villais, George A. APPLIED ECONOMICS , First Edition, Rex
Bookstore.
 Tullao, Tereso Jr. S., Ph.D., APPLIED ECONOMICS for a Progressive Philippines, 2016
Phoenix Publishing House, Inc.
Websites
 https://www.slideshare.net/BUGLAS/applied-economics-86952585
 https://www.coursehero.com/file/36329041/Applied-Economics-Lesson-1docx/
 https://www.courses.com.ph/senior-high-school-specialized-subject-applied-economics/
 https://courses.lumenlearning.com/wmopen-introbusiness/chapter/what-is-economics/
 http://okionomia.blogspot.com/2010/10/origin-of-word-economics.html
 file:///C:/Users/mcc/Downloads/435726560-Contemporary-Economic-Issues-Facing-
the-Filipino-Entrepreneur.pdf
 https://www.cfainstitute.org/-/media/documents/support/programs/cfa/prerequisite-
economics-material-demand-and-supply-analysis-intro.ashx

Applied Economics, M3 (Week 5 & 6)

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Mt. Carmel College of San Francisco, Inc.

8501, San Francisco, Agusan del Sur, Philippines

SENIOR HIGH SCHOOL LEVEL

Subject Applied Economics

Content The learner demonstrates an understanding of economics as applied science

At the end of the lesson, the learners will be able to:

Applied Economics - First Semester, SY 2020-2021 |1

In a general sense, economics is the study of production, distribution, and consumption

Applied Economics - First Semester, SY 2020-2021 |2

a. Shift to the right

1. Well-received market innovation of a new cellphone.

2. Decrease in the price of good X

3. Improved technology in the manufacturer of appliances

4. Entry of sellers in the market for electronic gadgets

5. New discovery of gold mines in the country

Applied Economics - First Semester, SY 2020-2021 |3

6. New investments in the manufacturing of shoes

7. Migration of Filipinos to first world countries

8. Government increase worker’s wages

Basic Principles of Demand and Supply

A market is an interaction between buyers and sellers of trading or exchange. It is

Demand is an economic principle referring to a consumer's desire to purchase goods

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Price per bottle Number of Bottles

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Quantity Demanded (In Bottles)

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Non-Price Determinants of Demand

Another non-price determinant is the consumer’s expectation of future price and

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Price of related goods as substitute or complements also determine demand.

Shifts of the Demand Curve

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Price of Fish (per Kilo) Supply (in Kilos)

Php 100 600

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The Law of Supply

Non-Price Determinants of Supply

The shift of the Supply Curve

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As a non-price determinant, the cost of production refers to the expenses incurred to

Technology is another significant non-price determinant of demand. The use of

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Determination of Market Equilibrium

Demand Schedule of Price Good X Supply Schedule of Good X

Equilibrium quantity is attained where Qd = Qs

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Example of Determination of Market Equilibrium

Assume a demand and a supply function as the following:

P = 50 – 2Qd (Demand) P= 20 + 4Qs (Supply)

P = price Qd = Demand Qs = Supply in thousands

At equilibrium, P = 40 and Q = 5 as illustrated by the demand-supply schedule and graph

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Assume a demand and supply function, as follows:

P = 50 – 2Qd (Demand) P = 20 + 4Qs (Supply)

P = Price Qd = Demand 4Qs = Supply in thousands

Elasticities of Demand and Supply

1. Elastic – a change in a determinant will lead to a proportionately greater change in

2. Inelastic – a change in a determinant will lead to a proportionately lesser change in

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3. Unitary Elastic – a change in a determinant will lead to a proportionately equal change