Professional Documents
Culture Documents
Applied E conomics
Implications of Market
Pricing in Making Economic
Decisions
https://www.thoughtco.com/supply-and-demand-practice-questions-1146966
2
HOW TO USE THIS MODULE
Before starting the module, I want you to set aside other task/s that may
disturb you while enjoying the lessons. Read
the simple instructions below to successfully enjoy the objectives of this
kit. Have fun!
Follow carefully all the contents and instructions indicated in every page
of this module.
Write on your notebook the concepts about the lessons. Writing
enhances learning that is
important to develop and keep in mind.
Perform all the provided activities in the module.
Let your facilitator/guardian assess your answers
•
Activities - This is a set of activities you will perform with a
partner.
3
•
Remember - This section summarizes the concepts and
applications of the lessons.
•
Check your Understanding - It will verify how you learned from
the lesson.
•
Post-test - This will measure how much you have learned from the
entire module
LESSON
4 Implications of Market Pricing in
Making Economic Decisions
EXPECTATIONS
PRE -TEST
Are you excited to to learn new sets of knowledge? Let us check your
knowledge about the topic. Have fun learning!
Part I. Graph Analysis
Directions: Please analyse the graph and answer the questions below. Write
your answer on the space/s provided for each question.
4
When do you have a When do you have a
surplus in the supply of shortage in the
product? supply of product?
1)____________________ 2)____________________
____________________ ____________________
https://study.com/academy/lesson/characteris
tics-of-the-price-system-in-a-market-economy.html
3. Using the chart above, kindly describe the point where there is a
a) surplus ____________________________________
b) shortage ___________________________________
c) equilibrium in price _________________________
4. What is surplus, shortage and equilibrium price? Define the terms.
Surplus______________________________________________________________
Shortage_____________________________________________________________
Equilibrium price_____________________________________________________
Part II. Multiple Choice Questions
Directions: Please read the statements carefully. Encircle the correct answer.
1. In the market, the price elasticity for the demand of canned goods sold by
Aling Puring Grocery Store is the:
a) ratio of the percentage change in quantity demanded for the goods to the
percentage change in its price
b) responsiveness of revenue to a change in quantity of the canned goods
c) ratio of the change in quantity demanded divided by the change in its
price of the canned goods
d) response of revenue to a change in the price
2. If demand for sacks of rice in Aling Puring Grocery Store is price elastic, then
a:
a) rise in the price of sacks of rice will raise total revenue of the grocery
b) fall in the price of sacks of rice will raise total revenue of the store
c) fall in the price of sacks of rice will lower the quantity demanded
d) fise in the price of sacks of rice won't have any effect on total revenues
3. If the cross-price elasticity between soap bar and liquid soap commodities is 1.5,
a) the two goods are luxury goods
b) the two goods are complements
c) the two goods are substitutes
d) the two goods are normal goods
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4. The price elasticity of demand for a certain good tends to be:
a) smaller in the long run than in the short run
b) smaller in the short run than in the long run
c) larger in the short run than in the long run
d) unrelated to the length of time
5. If the price elasticity of supply of cup noodles is 0.60 and the price increase
by 3 percent, then the quantity supplied for cup noodles increases by how by?
a) 0.60 percent.
b) 0.20 percent
c) 1.8 percent
d) 18 percent
https://global.oup.com/us/companion.websites/9780199811786/student/chapt2/multiplechoice/
Great job! You finished answering the questions. You may now request your
facilitator to check your work. Congratulations and keep on learning!
6. __________If the price is below the equilibrium level, then the quantity
demanded will exceed the quantity supplied.
8. __________The law of supply and demand explains the interaction between the
sellers of a product and the buyers.
Directions: Give the meaning of the following words/phrases. You may use the
internet to substantiate your ideas.
Price Elasticity__________________________________________________________
Price Elasticity of Demand_______________________________________________
Price Elasticity of Supply________________________________________________
BRIEF INTRODUCTION
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of the areas with poverty in Manila will reach over 9 million!
With the rising population of the Philippines there will be a
problem with the economy of clean water because there will
be too much demand for the supply of water. .
https://redmonteconomics.weebly.com/blog/demand-supply-and-elasticity-of-clean-water-in-the-philippines
Last module, we talked about the market demand, market supply and
market equilibrium. In our new topic, we will link more of these variables to
the market price system. For example, in the article above, the causes and
effects of the water shortage around the Philippines could be best explained if
we could understand the concepts of demand and supply elasticity of the
clean water.
A shortage is when there is an excess demand for the quantity
supplied. While surplus is excess in supply.
For example, if there are 10 bottles of water and there are 20 students who
want drinking these, then there will be only 10 students whose demands are met
while the others will not be able to be given anything. There is shortage in the
supply.
If producers make too many bottles of water and consumers cannot by them
want to buy them, there will be surplus.
EQUILIBRIUM CHARACTERISTICS
Equilibrium is a point of balance or The supply and demand are
a point of rest. It is also called balanced in equilibrium.
“market-clearing price”.
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Are you enjoying the lesson? Let us proceed to the next topic.
Price System in a Market Economy: Its Characteristics
Example is when a tables are for sale in your community today and is
assumed that they are not very important as compared to other products or
commodities that we need to survive especially that aour movements are very
limited.
Neither the producers nor
consumers can impact prices; Price acts as a signal for shortages and
consumers can buy whatever surpluses which help firms and consumers
they want; nor can producers respond to changing market conditions.
make and sell
whatever they want • If a good is in shortage – price will tend to rise.
Rising prices discourage demand, and encourage
Prices are decided by firms to try and increase supply.
interactions between the
producers and the consumers. • If a good is in surplus – price will tend to fall.
Falling price encourage people to buy, and cause
firms to try and cut back on supply.
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We explore more how equilibrium happens.
The market price is Let us analyze the chart below.
the point that the supply and
demand curves The chart shows a surplus – the quantity is
intersect. (Judge, S. 2020) greater than demand. When quantity is greater
than demand it causes prices to go down.
Figure 1.
The Equilibrium Point or the
Market Price Point Figure 2. Surplus Point
https://study.com/academy/lesson/characteristics -of-the-price-system-in-a-market-economy.html
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The Law of Demand
Again, what is a demand? We said last The demand curve is always
time that it is the desire of a consumer to downward sloping due to the
purchase goods or services and willingness to law of diminishing marginal
pay a at for that product or services at a given utility.
price.
If all other factors remain equal, the
higher the price of a good, the fewer people
will demand that good.
https://www.ducksters.com/money/supply_and_demand.php
https://www.ducksters.com/money/supply_and_demand.php
How Do Supply and Demand Create an Equilibrium Price?
The supply curve is a vertical line; overtime, supply curve slopes upward; the
more suppliers expect t to charge higher, the more they will be willing
to produce and bring products to market.
In the Equilibrium point, the two slopes will intersect. The market price
is sufficient to induce suppliers to bring to market that same quantity of goods that
consumers will be willing to pay for at that price.
https://www.investopedia.com/terms/l/law-of-supply-demand.asp https://www.thoughtco.com/calculating-economic-equilibrium-
1147698 https://www.ducksters.com/money/supply_and_demand.php
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PRICE ELASTICITY OF DEMAND AND SUPPLY
Can you guess what happened with this mom in a market?
You may write your reaction in the shape towards her.
https://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_demand.html
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When the percentage change in quantity demanded is greater than the
percentage change in price, and the coefficient of the elasticity is greater than 1.
Example real estate- housing - There are many different housing choices. People
may live in a townhouses, condos, apartments, or resorts. The options make easy
for people to not pay more than they demand.
When the percentage change in quantity demanded is less than the percentage
change in price, and the coefficient of the elasticity is less than 1.
Example Gasoline – gasoline has few alternatives; people with cars consider it as a
necessity and they need to buy gasoline. There are weak substitutes, such as train
riding, walking and buses. If the price of gasoline goes up, demand is very inelastic.
Other Examples: Diamonds, aircon, Iphone, Cigarettes
e) Perfectly Inelastic - the PED is =0 any change in price will not have any
effect on the demand of the product.
Perfectly inelastic - the percentage change in demand will be equal to zero (0)
POINT ELASTICITY
a) The midpoint elasticity is less than 1. (Ed < 1). Price reduction leads
to reduction in the total revenue of the firm.
b) The demand curve is linear (straight line), it has a unitary elasticity at the
midpoint. The total revenue is maximum at this point.
c) Any point above the midpoint has elasticity greater than 1, (Ed > 1).
YED is positive. As income rises, the proportion spent on cheap goods will reduce
as now they can afford to buy more expensive goods.
Example (the demand for units of air-conditioning increases as the income of the
consumer increases and the demand for electric fan decreases)
The Inferior Goods – the demand decreases when consumer income rises; demand
increases when consumer income decreases)
---------- Shifts to the left as income rises. YED is negative. • As income rises, the
proportion spent on cheap goods will reduce as now they can afford to buy more
expensive goods. Examples: the demand for cheap/generic electronic goods (let say
electric fans) will fall as people income rises and they will switch to expensive
branded electronic goods (unit of air-conditioning)
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PRICE ELASTICITY OF SUPPLY
1. Marginal Cost- If the cost of producing one more unit keeps rising as output
rises or marginal cost rises rapidly with an increase in output, the rate of output
production will be limited. The Price Elasticity of Supply will be inelastic - the
percentage of quantity supplied changes less than the change in price. If Marginal
Cost rises slowly, supply will be elastic.
2. Time - Over time price elasticity of supply tends to become more elastic. The
producers would increase the quantity supplied by a larger percentage than an
increase in price.
3. Number of Firms - The larger the number of firms, the more likely the
supply is elastic. The firms can jump in to fill in the void in supply.
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5. Capacity - If firms have spare capacity, the price elasticity of supply is
elastic. The firm can increase output without experiencing an increase in costs,
and quickly with a change in price.
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ACTIVITIES
Directions: Please analyse the problems carefully. Answer the problems and
present your solutions. Inerpret the results.
1) If there are 10 bottles of water and there are 20 students who want to
drink these bottles of water, there will be only 10 students whose
demands are met while the others will not.
Solution:
Solution:
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B) Analysis on price elasticity
_________________________________________
A) Solution:
REMEMBER
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Learning Module for Applied Economics
• If the price is below the equilibrium level, then the quantity demanded
will exceed the quantity supplied.
• Excess demand or a shortage will exist. If the price is above the
equilibrium level, then the quantity supplied will exceed the quantity
demanded.
• Excess supply or a surplus will exist. In either case, economic pressures
will push the price toward the equilibrium level.
Part I. Identification
Directions: Please read the sentences carefully. Identify the the word or phrase
that is appropriate to each item.
Directions: Please conduct a survey or observe the market in your vicinity. This
can make you aware of your environments. Give examples of goods considered
as elastic and inelastic. You may work with your parents and siblings.
POST -TEST
Name_______________________________Year/Section_______________Date______
Teacher____________________________School_________________________________
2. If demand for a good or service is static even when the price changes,
demand is said to be inelastic
3. Examples of elastic goods include gasoline, while inelastic goods are items
like canned goods and vitamin c tablets
4. The law of demand states that “elasticity shows how much a good or service
is demanded relative to its movement in price”.
9. The demand curve shows how quantity demanded for apple responds to
price changes. The flatter the curve, the more elastic is the demand for an
apple.
People have unlimited needs and wants for their personal satisfaction and because
of that the prices of products easily get changed.
Everyone is affected with the new normal in the market. The prices of
products have become very expensive since the outbreak of the pandemic, not
only in our locality, but in the whole world.
If your income or the income of your family is not enough to purchase the basic
commodities needed by your family, what goods would you buy, instead?
What economic or marketing strategies would you apply? How would you respond to the
price changes of these commodities?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_______________________________________________
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Learning Module for Applied Economics
E-SITES
To further explore the concept learned today, and if it possible to connect the internet,
you may visit the following links:
https://www.youtube.com/watch?v=HHcblIxiAAk; https://www.youtube.com/watch?
v=nOlOf_KEnrw
REFERENCES
Articles:
Agarwal, P. (2018) Price Elasticity of Supply. Retrieved on
June 04 2020 from https://www.intelligenteconomist.com/price-elasticity-of-supply
Amadeo, K. (2020) Elastic Demand with Its Formula, Curve, and Examples Retrieved on June 04 2020
from https://www.thebalance.com/elastic-demand-definition-formula-curve-examples-3305836;
https://www.thebalance.com/inelastic-demand-definition-formula-curve-examples-3305935
Judge, S. (2020) Characteristics of the Price System in a Market Economy. Retrieved on June 04 2020
from https://study.com/academy/lesson/characteristics-of-the-price-system-in-a-market-economy.html
Pettinger, T. (2019) Role and Function of Price in Economy Retrieved on June 04 2020 from
https://www.economicshelp.org/blog/1170/economics/role-and-function-of-price-in-economy/
Websites
https://www.slideshare.net/kalaiyarasidanabalan/a-level-economics-chapter-2-core
https://www.investopedia.com/ask/answers/012915/what-difference-between-inelasticity-and-
elasticity demand.asp https://www.sparknotes.com/economics/micro/elasticity/problems
https://www.investopedia.com/terms/l/law-of-supply-demand.asp
https://opentextbc.ca/principlesofeconomics/chapter/3-1-demand-supply-and-equilibrium-in-
marketsfor-goods-and-services/
https://global.oup.com/us/companion.websites/9780199811786/student/chapt2/multiplech
https://opentextbc.ca/principlesofeconomics/chapter/5-1-price-elasticity-of-demand-and-
priceelasticity-of-supply http://faculty.fortlewis.edu/walker_d/practice_problems_-_elasticity.htm
https://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_demand.html
https://redmontecon https://global.oup.com/uk/orc/busecon/economics/gillespie_econ4e/student/
mcqs/ch05/ https://study.com/academy/answer/if-a-20-decrease-in-the-price-of-long-distance-phone-
calls-leads; https://int.search.myway.com/search/AJimage.jhtml
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Learning Module for Applied Economics
Acknowledgment
Writers: Ellaine I. Dela Cruz, DBA
Isabel A. Gumaru, DBA
Management Team :
Name_______________________________Year/Section________
_______Date__
Maria Magdalena M. Lim, Schools Division Superintendent
-Manila
Aida H. Rondilla, Chief
Education Supervi
sor
Teacher____________________________School_____________________________
Lucky S. Carpio, EPS In Charge ofDS
LRM
Lady Hannah C. Gillo, Librarian
-LRMIIDS
Name:_____________________Year/Section_______________Date________Score________
1. Christine sells banana banana turon for Php 4.00 per piece. She sells 50
pcs, and decides that she can charge more. She raises the price to
Php6.00 per piece and sells 40 pieces. What is the elasticity of demand for
her banana turon?
a) Solution:
23
Learning Module for Applied Economics
2. Joy Lima manages a Sweet Chocolate Bar Store. She charges P100 per bar
for her chocolate. You, the economist, have calculated the elasticity of
demand for the chocolate in her town to be 2.5. a) If she wants to increase
her total income or revenue, what advice will you give her and why? b)
What economic principle apllies? Explain your answer.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_______________________________________________________________________
_
_______________________________________________________________________
_
________________________________________________________________________
http://faculty.fortlewis.edu/walker_d/practice_problems_-_elasticity.htm
ANSWER KEY
PRETEST:
Part I. Graph Analysis
1) Quantity supplied is greater than quantity demanded
2) Quantity demanded is greater than quantity supplied
3) a) Above the equilibrium point
b) Below the equilibrium point
c) The surplus and shortage points meet or intersect
4) Oversupply/surplus – the quantity supplied is greater than the quantity demanded
Shortage/scarcity - the quantity supplied is less than quantity demanded Equilibrium - the
point where the demand and supply curves intersect.
ACTIVITIES:
Part I
1. Scarcity in the supply of bottled water
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