Senior High School

Applied Economics
Quarter 1 – Module 2

Law of Demand
Applied Economics – Grade 12
Alternative Delivery Mode
Quarter 1 – Module 2: Law of Demand
Second Edition, 2021

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Applied Economics

Quarter 1 – Module 2
Law of Demand
 Table of Contents
Overview ………………………………………………………………………………. 2
General Instructions…………..………………….………………….………………. 2
What I Know (Pre-test) …………………………………….……….……………….. 3
What I Need To Know ………………………….………………….….……………… 5
Lesson 2 Law of Demand………………… ………………………………………… 5

What’s In…………………………………………………………………………. 5
What’s New – Activity 1 (Picture Analysis)…………………………………… 6
What Is It? ………………………………………………………………………. 6
What’s More – Activity 2 (Show Me the Plot)…………………………………. 9
What I Have Learned – Activity 3 (Sum Me UP)…………………………….. 10
What I Can Do? - Activity 4 (True or False)…………………………………. 10
Additional Activity - Activity 5 (Making it Count!)……………………………. 11

Assessment ………………………………………………………………..…………… 11

Answer Key …………………………………………………………………..…………. 13

References ..…………………………………………………………………………….. 14
 OVERVIEW
Dear Teachers and Learners! The writers 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 that we the
writers would like you to learn in this material. 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.

GENERAL INSTRUCTIONS

For the learners: For the teacher:

To be guided in achieving the To facilitate and ensure the students’
objectives of this module, do the learning from this module, you are
following: encouraged to do the following:

1. Read and follow instructions 1. Clearly communicate learning

carefully.
2. Write all your ANSWERS in your
Activity Book.
3. Answer the pretest before going
through the lessons.
4. Take note and record points for
clarification.
5. Compare your answers against
the key to answers found at the
end of the modules.
6. Do the activities and fully
understand each lesson.
7. Answer the self-check to monitor
what you learned in each lesson.
8. Answer the posttest after you
have gone over all the lessons.
competencies and objectives
2. Motivate through applications
and connections to real life.
3. Give applications of the theory
4. Discuss worked-out examples
5. Give time for hands-on
unguided classroom work and
discovery
6. Use formative assessment to
give feedback
7. Introduce extensions or
generalizations of concepts
8. Engage in reflection questions
9. Encourage analysis through
higher order thinking prompts
10. Provide alternative formats for
student work
11. Remind learners to write their
answers in their Philosophy
Activity Notebook

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 What I Know

PRE-TEST

Directions. Read the test items carefully and encircle the letter of your choice that
best answers the statement.

1. It reflects the desire of the consumer for a commodity:

A. Demand C. Market
B. Supply D. Supply schedule

2. The quantities consumers are willing to buy of a good at various prices:

A. Demand C. Market
B. Supply D. Demand schedule

3. Demand for television increases despite the increase in price, is due to a change
in:

A. Supply C. Demand
B. Quantity demanded D. None of the above

4. The ceteris paribus assumes that:

A. Price factor is constant C. Non-price factor is not constant

B. Price factor is not constant D. Non-price factor is constant

5. An increase in income shifts the demand curve upward rather than downward
because:

A. Increase in income, decreases price C. Income increases demand

B. Price is constant D. None of the above

6. Which of the following is true?

A. The lower the price of a good, the smaller the quantity that will be offered by
the supplier.
B. The lower the price of a good, the bigger the quantity that will be demanded
by the buyer.
C. All of the above are true.
D. None of the above is true.

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3
7. The following are the determinants of demand, EXCEPT:

A. Income C. Price expectations

B. Number of sellers D. Prices of related goods

8. Which of the following is NOT true?

A. The demand curve is upward sloping to the right while the supply curve is
downward sloping.
B. An increase in population results in a greater demand since there will be more
consumers as population increases.
C. Taste or preferences may vary from person to person.
D. None of the above

9. It refers to the quantity of a commodity which buyers will buy at a given time and
place will vary inversely with the price.

A. Law of Supply C. Price elasticity

B. Law of Demand D. Law of Demand and Supply

10. A shift in the consumer’s demand curve means:

A. a change in the entire demand curve

B. a change in the quantity demanded
C. both a and b
D. neither a nor b

Great job!
Later we will see if your answers are correct by reading the rest of this modu

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 Lesson The Law of Demand
2

What I Need To Know

Objectives: After going through this module, the learners should be able to:

1. Define demand;

2. State the law of demand;

3. Identify and explain the determinants of demand; and

4. Differentiate a change in demand and a change in quantity demanded.

What’s In

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.

In this lesson, focus is geared on the law of demand with especial emphasis in
its deteminants and how these determinants affect the demand in the market.

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 What’s New
Activity 1. Picture Analysis

Directions: Analyze the picture by answering the questions:

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?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

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.

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 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 earn 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 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.

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 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.

Table 1. Hypothetical Demand Schedule of Brand X

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

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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.

What’s More
Activity 2. Show Me the Plot

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

Price of Pork (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

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 What I Have Learned?
Activity 3. Sum Me UP

Based on the lesson, I have realized that

________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________

What I Can Do?

Activity 4. True or False

Directions. Write TRUE in the space provided if the statement is correct and FALSE
if incorrect.

_______ 1. The demand for a product is the quantity of a good that the buyers are
willing to buy at certain prices.

_______ 2. One of the non-price determinants of demand is taste. Taste or

preference may vary from person to person.

_______ 3. The consumers’ income does not influence the demand for goods and
services.

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_______ 4. An increase in population results in a greater demand since there will be
more consumers as population increases.

_______ 5. The change in quantity demanded is brought about by changes in prices.

Whenever there is a change in price, there is a corresponding change in
quantity demanded.

Additional Activity

Activity 5. Making It Count!

Cite instances where determinants of demand affect consumer’s behavior. List them
down in your notebook.

Assessment

POST-TEST

Directions. Read the test items carefully and encircle the letter of your choice that
best answers the statement.

1. It reflects the desire of the consumer for a commodity:

A. Demand C. Market
B. Supply D. Supply schedule

2. The quantities consumers are willing to buy of a good at various prices:

A. Demand C. Market
B. Supply D. Demand schedule

3. Demand for television increases despite the increase in price, is due to a change
in:

A. Supply C. Demand
B. Quantity demanded D. None of the above

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4. The ceteris paribus assumes that:

A. Price factor is constant C. Non-price factor is not constant

B. Price factor is not constant D. Non-price factor is constant

5. An increase in income shifts the demand curve upward rather than downward
because:

A. Increase in income, decreases price C. Income increases demand

B. Price is constant D. None of the above

6. Which of the following is true?

A. The lower the price of a good, the smaller the quantity that will be offered
by the supplier.
B. The lower the price of a good, the bigger the quantity that will be
demanded by the buyer.
C. All of the above are true.
D. None of the above is true.

7. The following are the determinants of demand, EXCEPT:

A. Income C. Price expectations

B. Number of sellers D. Prices of related goods

8. Which of the following is NOT true?

A. The demand curve is upward sloping to the right while the supply curve is
downward sloping.
B. An increase in population results in a greater demand since there will be
more consumers as population increases.
C. Taste or preferences may vary from person to person.
D. None of the above

9. It refers to the quantity of a commodity which buyers will buy at a given time and
place will vary inversely with the price.

A. Law of Supply C. Price elasticity

B. Law of Demand D. Law of Demand and Supply

12
10. A shift in the consumer’s demand curve means:

A. a change in the entire demand curve

B. a change in the quantity demanded
C. both a and b
D. neither a nor b

Congratulations!
You have completed your journey in this module. You did a
great job! It is now time to go on to the next adventure…
Good luck!

Answer Key

PRE-TEST POST-TEST

10. C 5. C 10. C 5. C
9. B 4. A 9. B 4. A
8. A 3. B
8. A 3. B
7. B 2. D 7. B 2. D
6. C 1. A. 6. C 1. A.

ACTIVITY 2. SHOW ME THE PLOT ACTIVITY 4. TRUE or FALSE

5. TRUE
QUANTITY
4. TRUE

3. FALSE

2. TRUE
PRICE
1. TRUE

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 References

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.
Pagoso, Cristobal M. et al. Introductory Microeconomics. Manila, Philippines.
Rex Book Store, 2006.
Philippine Statistics Authority. Philippine Unemployment Rate from 1999-2019.
https://www.statista.com/statistics/578722/uemployment-rate-in-philippines/

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

Research and Communication Foundation, Inc., 2010.

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Don A. Velez St., Cagayan de Oro City
Contact No. (08822) – 724615 / (088) 856 – 4454
Email Address: misamis.oriental@deped.gov.ph
depedmor@gmail.com

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