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Quarter 1 - Module 1:
Economics and the Real World
Applied Economics - Senior High School
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First Edition, 2020
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Development Team
Authors: Maria Cecilia N. Gabas
Reviewers:
Applied Economics
Quarter 1 - Module 1:
Economics and the Real World
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.
Ops! you wait for a while, for an easy use of this material take note of some few reminders
1. Take your time to read every detail that this module contains.
2. This material contains Module 1 and Module 2 and each of which is provided with
activities/tests that will surely lead you to learn.
3. Here are the Icons used as your guide in every part of the lesson .
4. Please do follow the directions given per activity so your experience to the use of this
material will be meaningful and fruitful.
5. Answer all the tests in this material. Answer keys are provided for all the tests made
and can be found at the last page for every module. Make sure to do the activity first
before checking your answers against the answer key so that your work is fulfilling and
learning will take place.
6. As a courtesy to the future users, PLEASE DO NOT WRITE ANYTHING ON
ANY PART OF THIS MODULE. Write your answer/s on a separate sheet of paper,
notebook, workbook or whichever is specified by your facilitator
Page
What This Module is About……………………………………..
Icons of this Module……………………………………………..
Lesson 1.1
Revisiting Economics as a
Social Science………………………………… 7
Activity
1.1.2 Word Search…………………………………… 12
1.1.3 Check Your Understanding…………………... 13
1.1.4 Making It Count!……………………………….. 13
Lesson 1.2
Economics as an Applied Science………… 14
Lesson 1.3
Basic Economic Problems and the
Philippine Socioeconomic Development
in the 21st Century……………………………. 14
Activity
1.1.5 Making It Count!……………………………….. 16
1.1.6 Think and Reflect……………………………… 16
1.1.7 I Can Do This!…………………………………. 17
1.1.8 Drawing Out the Artist in You!……………….. 17
Summative Test………………………………………………. 18
Lesson 2:
Applied Economics…………………………. 20
Lesson 2.1
Application of Demand and Supply………. 20
Activity
1.2.1 Picture Analysis………………………………… 21
1.2.2 Show Me The Plot 1…………………………… 27
1.2.3 Sum Me UP…………………………………….. 28
Lesson 2.2
Demand and Supply in Relation to
the Prices of Basic Commodities…………… 28
Activity
1.2.4 Show Me The Plot 2…………………………….. 29
1.2.5 Find My Match…………………………………… 34
1.2.6 Show Me The Plot 3……………………………. 35
1.2.7 Sum Me UP……………………………………… 35
Lesson 2.3
Market Structures……………………………… 35
Activity
1.2.8 Picture Analysis…………………………………. 36
1.2.9 Word Finder…………………………………….. 40
1.2.10 Sum Me UP…………………………………….. 41
1.2.11 I Can Do This!………………………………….. 41
Lesson 2.4
Contemporary Economic Issues
Facing the Filipino Entrepreneur…………… 41
Activity
1.2.12 Guess What?……………………………………. 42
1.2.13 Check Your Understanding……………………. 48
1.2.14 Sum Me UP……………………………………… 48
1.2.15 Data Connection………………………………… 48
1.2.16 Making It Count!………………………………… 49
Summative Test………………………………………………… 50
Assessment (Post-Test)………………………………………. 51
First Quarter Exam……………………………………………. 53
Answer Key…………………………………………………….. 56
References……………………………………………………… 61
Module 1
Economics and the Real World
2
What I Need To Know
Hello, dear Learner! How are you today? Before reading this module,
what comes into your mind when you hear the word economics? Or have you
wondered how you can use economics in your chosen career? Do you ever
wonder if economic principles can be practically applied in real life?
In this module, it will guide you how to make a living, how to use wisely
your money, how to run a business, how to distribute properly the available
scarce resources, and how to maximize your profits and consumer’s
satisfaction, among other things. With appropriate economic decision and
implementation, life for everyone is most likely better. Finally, pre-test and
post-test are given to measure your mastery of learning.
3
4. Explain the law of supply and demand, and how equilibrium price and
quantity are determined (ABM_AE12-Ie-h-4);
5. Discuss and explain factors affecting demand and supply
(ABM_AE12-Ie-h-5);
6. Compare the prices of commodities and analyze the impact on
consumers (ABM_AE12-Ie-h-6);
7. Explain market structures (perfect competition, monopoly, oligopoly,
and monopolistic competition (ABM_AE12-Ie-h-7);
8. Analyze the effects of contemporary issues such as migration,
fluctuations in the exchange rate, oil price increases, unemployment, peace
and order, etc. on the purchasing power of the people (ABM_AE12-Ie-h-8);
4
What I Have This activity is designed to process what
you have learned from the lesson
Learned
What I Know
Pre- Pre-test
Directions. Read the test items carefully and encircle the letter of your
choice that best answers the statement.
5
4. Another term used for equilibrium:
A. Stable C. Balance
B. Static D. None of the above
6
A. Traditional system C. Market system
B. Command system D. Mixed system
10. The economic problem that refers to the nature of goods and services the
economy should produce:
14. A market structure that implies an ideal situation for the buyers and
sellers.
7
Less
1
on Introduction to Applied Economics
A. Taxes C. Permits
B. Fines D. Revenues
What’s In
8
analyze fascinating patterns of social behavior. Because economic questions
enter into both daily life and national issues, a basic understanding of
economics is vital for sound decision-making by individuals and nation.
What’s New
TERM DEFINITION
Applied economics The application of economic theory and
econometrics in specific settings with the goal
of analyzing potential outcomes.
Demand schedule Reflects the quantities of goods and services
demanded at different prices.
Economics Social science which deals with the allocation
of scarce resources to satisfy the unlimited
human wants.
Economic resources Also known as factors of production, are the
resources used to produce goods and
services.
Economic system The framework in which a society decides on
its economic problems
Equilibrium price Condition of balance or equality
Law of Demand The quantity of a commodity which buyers
will buy at a given time and place will vary
inversely with the price.
Law of Supply The quantity offered for sale will vary directly
with prices.
Macroeconomics The branch of Economics that studies the
economy as a whole, also known as National
Income Analysis
Market Is a place where buyers and sellers interact
with each other and that exchange takes
9
place among them.
Microeconomics The branch of Economics that deals with
parts of the economy such as the household
and the business firm. It is also known as
Price Theory.
Monopolistic competition Imperfectly competitive market wherein
products are differentiated and entry and exit
are easy.
Monopoly When a single firm that sells in that market
has no close substitutes.
Oligopoly Market dominated by a small number of
strategically interacting firms.
Perfect competition Implies an ideal situation for the buyers and
sellers.
Scarcity Is a condition where there are insufficient
resources to satisfy all the needs and wants
of a population.
Supply schedule Shows the different quantities that are offered
for sale at various prices.
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What Is It
On the national level, economics will enable you to take a look on how
the economy operates and to decide for yourself if the government officials
and leaders are effective in trying to shape up the economy and formulate
policies for the good of the nation.
11
a social science, economics studies how individuals make choices in
allocating scarce resources to satisfy their unlimited wants.
From the resources point of view, some would define economics as the
study of the efficient allocation of scarce resources. Since resources are
generally scarce while human wants tend to be unlimited, economics
encounters not a few problems. The root problem, which is the real problem,
is the unjust distribution of productive resources among the members of the
society. The fundamental problem of unfair allocation of resources has been a
global problem. There are extremely very few rich while there are very many
poor.
1. Land - These resources consist of free gifts of nature which includes all
natural resources above, on, and below the ground such as soil, rivers, lakes,
oceans, forests, mountains, mineral resources and climate. Land is
considered economic resources because it has a price attached to it. One
cannot utilize this natural resource without paying for it usually in the form of
rent or lease.
2. Labor - This is also termed as human resources. Labor refers to all human
efforts, be it mental or physical, that help to produce want satisfying goods
12
and services. This applies not only to workers, farmers or laborers, but also to
professionals like accountants, economists or scientists. Labor is an
indispensable factor in the production of goods and services. In return, he
earns an income in the form of wages and/or salaries.
5. Foreign Exchange - This refers to the dollar and dollar reserves that the
economy has.
Branches of Economics
All societies are faced with basic questions in the economy that have to
be answered in order to cope with constraints and limitations. These are:
1. What to Produce? - First of all, the system must determine the desires of
the people. Goods and services to be produced are based on the needs of the
13
consumers. However, there are some factors that should be taken into
consideration in producing the goods and services the individuals need.
These are:
3. How to Produce? - When producing goods and services, one has to think
of how best to do it. The best way to make goods is not to spend too much.
This also means you have to make goods with quality. To make goods like
these, one has to know the best way of making goods. You have to choose
the cheapest way. But this way must also let you make something with good
quality.
4. For Whom Shall Goods and Services be Produced? - The last question
has something to do with the problem of distribution. Once the goods are
produced, how shall they be distributed. Thinking about this problem means
asking, “Who gets what?” on a bigger scale. In this case, this means whatever
is being sold can be bought. But only those who have money and who want it
can buy what is being sold. The poor cannot buy the same goods and
services as rich people. When you have money, you have purchasing power.
It means, you have the power to buy things.
Economic Systems
2. Command Economy. Under this system, the government takes hold of the
economy of the State. The government does policy formulation, economic
planning and decision-making. It dictates on what to produce, how to produce
and for whom to produce. The system works based on the interest of the
country and not on the individual. In this case, the consumer could not choose
the goods and services he wanted. The government answers the major
14
economic questions through its ownership of resources and its power to
enforce decisions.
Methods of Economics
15
In this example, ceteris paribus is a generalization. It means the demand
law will be true if nothing but the price changes. It means everything else will
stay the same. If something aside from the price changes, the demand law
will be false.
For example, what if the money a person earns goes up? What if it goes
up more than the price of the good goes up? This means the person still has
more money to spend. So he will still buy the goods even if the price is higher.
Economics has what we call theories. Theories are ideas. They tell us
why people act a certain way. They also tell us why things are the way they
are.
What’s More
M I C R O E C O N O M I C S R
A L M L K P A Z H K Q W O R O
16
R A A P R L R D L P U Y M T M
E N C E O M Q O L J B I M O A
N U D C E R A T D Q L P A Q C
T N Y O S P T X O U K J N H R
R A O N Q R P S W R C F D G O
E P L O U S S C F Y U T E D E
P P N M I L A B O R Z A I S C
R L E I N T R O X C C V B O O
E I W C E U F P K J L M D N N
N E G S C A R C I T Y K H M O
E D Z K S V E D A S D F A G M
U E T A X P A Y E R Q R F W I
R Z N J U W M W U Y K T R E C
I G A H P A U I J E G I O P S
A A R D N X B K T N C X Z S Z
C B F B E Y J L I V B N M A Q
E A S T I N T E R E S T E V W
C R E S O U R C E S H W R E T
1. __________ is the social science that involves the use of scarce resources
to satisfy unlimited wants.
17
6. __________ is the authoritative system wherein decision-making is
centralized in the government or a planning committee.
7. Soil and natural ___________ that are found in nature and are not man-
made.
2. Why is economics deeply rooted in the concept of scarcity? How can you
relate scarcity as a Senior High School student?
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18
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What I Can Do
Talk to the person who prepares the household budget for the family, it could
be your mother or your father. Make a list of all the basic expenses for one
month. Then ask the budget in percentage for each of these expenses. Do
this in your journal.
19
A solid understanding of economic principles and how they are applied in
real-life situations can serve as significant tools to help address the country’s
economic problem.
The rich country can solve problems easier. They can solve problems
faster. They do not have to worry about basic problems. But for poor
countries, finding food for daily living is in itself a problem. They have a hard
time finding shelter, clothing, health services, or even education.
Despite this admirable growth, people, especially the poor, have been
complaining of non-inclusive growth. Millions of Filipinos are claiming they
experience hunger or they still live below the poverty level.
20
Employment rate in April 2020 fell to 82.3 percent from 94.7 percent in
January 2020. In April 2019, it is posted at 94.9 percent. This translates to
33.8 million employed persons in April 2020 from 41.8 million in April 2019. All
regions reported double-digit unemployment rates. The highest
unemployment rate was in Bangsamoro Autonomous Region in Muslim
Mindanao (BARRM) at 29.8 percent. It is followed by Region III (Central
Luzon) and Cordillera Administrative Region (CAR) with unemployment rates
recorded at 27.3 percent and 25.3 percent, respectively
(https://psa.gov.ph/content /employment-situation-april-2020).
21
What’s More
The Philippines has encountered many serious problems most of the time.
In view of this, list down some of these economic problems the country has
encountered for this year. Opposite that problem, give at least three possible
solutions that you think will help solve the problem.
1. 2.
3.
1.
2. 2.
3.
1.
3. 2.
3.
22
What Have I Learned
Directions: Make a reflection journal where you will write your answers to the
following questions:
2. What could be the reasons behind it? As a student, how can you eliminate
or minimize these problems?
What I Can Do
If you were to advise the President of the Philippines on how to cope with the
issues on poverty and unemployment to improve the lives of the Filipino
people, what would you tell him and why?
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Additional Activities
Name:___________________________
SUMMATIVE
Date:_________________ Section: _________
TEST Teacher: _____________ Score
24
_ decisions on the economic problems of society.
5. ______________ A condition where there are insufficient resources to
_ satisfy all the needs and wants of a population.
6. ______________ This is a system which is a mixture of the different
_ types of economy.
7. ______________ It is a finished product which is used to produce
_ other goods.
8. ______________ It deals with the economic behavior of individual
_ units such as the consumers, firms, and the owners
of the factors of production.
9. ______________ Man’s needs required for his survival.
_
10. ______________ It is also termed as human resource.
Land Labor
Capital Entrepreneur
_______________ 1. Entertainers
_______________ 2. Minerals
_______________ 3. Forests
_______________ 4. Marine resources
_______________ 5. Teachers
_______________ 6. Technology
_______________ 7. Production equipment
_______________ 8. Engineers
______________ 9. Call center agents
______________ 10. Business proprietor
25
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2
Lesso
Applied Economics
n
Have you ever asked who decides on the prices of the goods you buy?
For many people, the answer is easy. They think the government decides how
high or low prices should be. But this is not always true. For example, the
government decides the prices of rice, gasoline, and apartment rent. But the
prices of most goods are determined by market price.
A market price is the price determined only by demand and supply. It also
means that the government had little say about that price. But what if the
government decided on a price that is higher than the market price? Who
would be affected? How will this affect the demand and supply for that good
or service?
26
In such a case, the sellers will be badly affected. Since people want
lower-priced goods, they will buy less. That means if the price goes up, they
will not buy as much. The sellers will have a lot of goods that people are not
buying.
What about if the government sold the goods or services at a price lower
than the market price? In this case, remember that people want as much profit
as possible. If the government decides on a price lower than what the market
alone would have allowed, will the sellers be happy? The answer is no. If
people have to pay the sellers less for their goods, the sellers will get less
money.
What’s New
27
1. How do you determine the prices of goods and services?
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What Is It
28
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
29
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
There are two ways of explaining why people buy more or less of a good
depending on price:
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.
30
Validity of the Law of Demand
FromPRICE
the table, it QUANTITY DEMANDED
is shown that
an individual would tend to buy
5 35
more when its price is low than
when the10 price is high. At a price
30
of P35.00, quantity demanded by
15
the consumers is 5 while25a
decrease20 of price to P5.00 20
increases the quantity demanded
25
of the consumers to 35. 15
30 10
35 5
31
Figure 1. Graphical Illustration of a Demand Curve
Determinants of Supply
32
more to keep producing. This is why when the cost of producing goes up, the
supply of goods most likely goes down.
For example, businessmen don’t want to sell more goods if they are not
sure that they will get as much money. If they have to pay workers more, that
means less of their profit will stay with the owners. They have to give more of
what they earn to the workers. What if sellers just increase price when cost of
production goes up? Won’t this help them get more money? It might, but not
all the time. Remember that higher prices means less people will buy. This
means that if the cost of production doesn’t go down soon, sellers will
continue losing money. They might have to stop producing completely.
Some basic goods are: gasoline, rice, milk or cooking oil. What about if
producers expect a price decrease? In this case, they will lessen production.
Still, there are some exceptions, like farmers. They cannot lessen their crop
supply especially when their crops are already growing. On the other hand,
many factories increase the number of their goods due to expected price
increase.
33
6. Taxes and Subsidies. Certain taxes increase the cost of production. Higher
taxes discourage production because it reduces the earnings of businessmen.
That is why the government extends tax exemptions to some new and
necessary industries to stimulate their growth. Similarly, tax incentives are
granted to foreign investors in order to increase foreign investment in the
Philippines. This will result to more goods.
The law of supply states that the quantity offered for sale will vary
directly with price. This means that as price increases quantity supplied also
increases; and as price decreases, quantity supplied also decreases. This
direct relationship between price and quantity supplied is the law of supply.
Producers are willing and able to produce and offer more goods at a higher
price than at a lower price. Obviously, sellers offer more goods at higher
prices because they make more profits. Such behavior of sellers or producers
is a natural inclination. No businessman is willing to produce goods if he
makes no profit.
34
The supply schedule shows the different quantities that are offered for
sale at various prices. The supply schedule may reflect the individual
schedule of only one producer or the market schedule showing the aggregate
supply of a group of sellers or producers. Table 2 gives you an idea of a
supply schedule.
5
Table 2 indicates that a seller 5
offers a big
10 quantity of brand Y10
in the market if the price is
high and15likewise, sells only a15
few when20the price is low. 20
25 25
The supply schedule as
30 30 shown in Table 2 can also be
illustrated in graphical form
35 35 known as the supply curve.
This is shown in Figure 2.
What’s More
35
Activity 1.2.2. Show Me The Plot 1
36
Based on the lesson, I have realized that __________________________
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What’s In
37
What’s New
What Is It
Market Equilibrium
Equilibrium
38
Market equilibrium generally pertains to a balance that exists when
quantity demanded equals quantity supplied. Market equilibrium is the general
agreement of the buyer and the seller in the exchange of goods and services
at a particular quantity. At equilibrium point, there are always two sides of the
story, the side of buyer and that of the seller.
For instance, given the price of P30.00 the buyer is willing to purchase
150 units. On the seller side, he is willing to sell the quantity of 150 units at a
price of P30.00. This simple illustration simply shows that the buyer and seller
agree at one particular price and quantity, that is P30.00 and 150 units. This is
the main concept of equilibrium: that there is a balance between price and
quantity of goods bought by consumers and sold by sellers in the market.
Equilibrium market price is the price agreed by the seller to offer its good
or service for sale and for the buyer to pay for it. Specifically, it is the price at
which quantity demanded of a good is exactly equal to quantity supplied of the
same good.
Let us work through the supply and demand schedules in Table 3 to see
how supply and demand determine market equilibrium. To find the market
price and quantity, we find a price at which the amount desired to be bought
and sold just matches. If we try a price of P10.00, a producer would like to sell
50 units while consumers want to buy 250 units. The quantity demanded
exceeds quantity supplied. At price P40.00, a quick look shows that quantity
supplied which is 200 units exceeds the quantity demanded which is 100
units.
We could try another process, but we can easily see that the equilibrium
price is P30.00. At P30.00, consumers’ desired demand of 150 units is equal
with the desired supply which is also 150 units. This denotes that supply and
demand orders are filled, and consumers and suppliers are satisfied.
39
Figure 3. Equilibrium Price and Equilibrium Quantity Established By Interaction
Between Demand and Supply
Generally, a surplus happens when there are more products sold in the
market by sellers but few products are bought by consumers. This is because
the quantity of goods that buyers are willing to buy at a given price is less than
the quantity of goods that sellers are willing to sell at the same price.
40
since they will bid up prices in order for them to acquire the goods or services
that are in short supply. For as long as there is disequilibrium in the market,
prices will still go up until such situation is normalized.
This constant price is the equilibrium or market price. This means that
buyers and sellers agree on that price.
Price Controls
41
Market Equilibrium: A Mathematical Approach
Take note that in the said equations, there are three unknown variables:
QD, QS, and P where QD is quantity demanded, QS is quantity supplied, and P
is price. Moreover, the parameter in equations (1) and (2) is a and the
coefficient is b. Given these equations, we can now determine the equilibrium
price and quantity.
Example:
QD = 68 - 6P
QS = 33 + 10P
Solving the problem, we can simply state our equilibrium equation as:
a - b(P) = a + b(P)
68 - 6(P) = 33 + 10(P)
Solving for the unknown (P), we simply group like terms, thus
68 - 33 = 10P + 6P
35 = 16P
P = 2.19
42
Now we have determined the price of the goods. The next problem for us
is to determine the equilibrium quantity. Since we already know the price, all
we have to do is to substitute the value of the price to our previous equations,
thus:
68 - 6 (2.19) = 33 + 10 (2.19)
Solving the equation, our Q D = QS is equal to 54.8 or we can set the value
in the whole number. Therefore, the equilibrium quantity is equal to 55 units
and the equilibrium price is P2.19.
What’s More
Column A Column B
1. General agreement of the buyer and a. Floor price
the seller in the exchange of goods and
services at a particular quantity.
2. The legal minimum price imposed by b. Price control
the government on certain goods and
43
services.
3. A condition in the market where the c. Adam Smith
quantity supplied is more than the
quantity demanded.
4. British economist who introduced a d. Market equilibrium
kind of pricing scheme by combining
the law of demand and the law of
supply.
5. The quantity of a commodity which e. Shortage
buyers will buy at a given time and
place will vary inversely with the price.
6. The legal maximum price imposed f. Surplus
by the government.
7. This means that as price increases g. Alfred Marshall
quantity supplied also increases; and
as price decreases, quantity supplied
also decreases.
8. The specification by the government h. Price ceiling
of minimum or maximum prices for
certain goods and services.
9. Basically a condition in the market in i. Demand
which quantity demanded is higher
than quantity supplied at a given price.
10. It means all other things equal or j. Ceteris Paribus
constant.
k. Law of Supply
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Directions: Plot the following hypothetical market demand and supply
schedules for commodity X in a graphing paper.
Based on the lesson, I have realized that the law of supply and demand
states ________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
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What’s In
After looking at the basic principles of demand and supply, it will also be
helpful to learn about the market structures in which sellers can operate. Each
structure will be described in terms of the nature of the product being sold, the
number of buyers and sellers in the market, and the ease of entering or
exiting the market.
In this lesson, you will be able to explain the market structures (perfect
competition, monopoly, oligopoly, and monopolistic competition).
What’s New
Directions: Describe or give your own idea about the given pictures.
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
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______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
What Is It
2. Monopoly - exists when a single firm that sells in the market has no close
substitutes. The existence of a monopoly depends on how easy it is for
consumers to substitute the products for those of other sellers.
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4. Oligopoly - is a market dominated by a small number of strategically
interacting firms. Few sellers account for most of the total production since
barriers to free entry make it difficult for new firms to enter.
Perfect Competition
2. Products are all the same. Because they are the same, they are
homogeneous. Examples are farm goods like rice, corn, or fruits.
3. No one seller and no one buyer can cause a change in the price of a good.
There are too many sellers with the same good. If one seller decreases
his or her supply a lot, this will still not change the total supply of everyone
else in the market. The market price of the goods will stay the same.
At the same time, if one seller sells his or her goods at a lower price
than anyone else, many people will buy from him or her right away. If he or
she sells at a higher price than anyone else, he or she will not sell his goods.
The rise or fall of market price depends on total demand or total supply, not
on a single buyer or seller.
4. It is easy for new firms to enter the market. It is also easy for firms that are
already there to leave the market. For example, a vegetable vendor is free to
sell in the market. He or she only pays the market fee. If she no longer wants
to sell, she can simply leave the market.
Monopoly
2. Not all the products are exactly the same. This is because there are no
close substitutes for them. Some firms in real life which are pure monopolies
are the following: MERALCO, PLDT, and MWSS.
3. The monopolist chooses the price. Since he or she is the only one selling
the goods, he or she can lessen the output to make the price higher. He or
she can also increase supply if this will increase his profit.
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4. It is very hard for new firms to enter the market. This is because there are
already other firms who know how to work in the market better.
If there is a monopolist, this firm is very powerful in the market. There are
also natural monopolies because there are some things like electricity or
water that cannot be sold by more than one company.
5. There may or may not be a lot of promotion of the goods sold by the
monopolist. By promotion we mean billboards or commercials.
Since no one else sells the goods sold by the monopolist, there is no
need to tell people to buy from a particular company. In a market with a
monopoly, the people can only buy from the monopolist.
Monopolistic Competition
1. There are many sellers acting independently. This means at least 100
sellers. In terms of competition, this means a thousand or more sellers.
2. Products are not all the same. The products look different from each other.
They are also sold in different places. There are different commercials and
billboards for them.
Examples are banks, books, medicine, and gasoline stations
For example, not all brands of soap have the same price
4. New firms do not have a very hard time entering the market. Still, they have
a harder time than firms in markets with pure competition. Why?
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This is because they need more capital. There is also more competition
because their products have to be better. They also need to promote it better
so people will choose their goods instead of others.
Oligopoly
1. Only some firms are powerful in the market. Each firm produces a big part
of the total output of the industry.
2. Products are either the same or different. Raw materials like cement or
steel are all the same. Finished goods like typewriters or cars are different
from one another.
4. It is hard for new firms to enter the market. They need a lot of capital and
they need to produce a large number of goods. It is hard to beat the firms that
have been in the market longer because these firms know better. But new
firms can still enter the market.
5. There is a lot of product promotion among those who make different goods.
In the case of producers who all sell the same goods, they have to promote
themselves well.
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This is for the good of the buyers and the economy. For example, in
some industries that sell water or electricity, only one firm is allowed to sell
each service or good.
2. Technology. Because they have been monopolies for a long time, a lot of
firms have become very rich. This is because they did not have to try and beat
other firms to earn more profit.
But some new firms get hold of modern machines which help them
produce more goods and better goods compared to the monopolies. Because
of this, monopolies become oligopolies or monopolistic competition happens.
For example, abaca was once the best choice to use when making
paper, ropes, and fishing nets. But now, plastic is also used to make ropes,
for example. The abaca industry is no longer a monopoly.
3. Business policies and practices. New firms might be scared of big firms.
Also, new firms do not have as much input to use, unlike the big firms.
Sometimes the big firms will even work together. This makes it harder for new
firms to earn profit. The new firms can even buy the new firms instead of
letting them work in the market.
4. Economic freedom. Being free in this sense can mean having things of your
own. It means being able to sell what you want as long as no one gets hurt.
Having economic freedom may also mean firms can compete with one
another. In some cases, the firms try very hard to beat one another. Only a
few firms stay in the market.
In this case, a single seller or only a few can help in saying what the price
of goods should be. They can also say how much should be made.
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What’s More
Directions: Unscramble the words. Write down your answers in the box.
1. GOLPYOLIO
2. MYOONOPL
3. COMTINOPEIT
4. LTICONPMOOSI
5. KTERAM
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What I Can Do
What’s In
After learning about the workings of demand and supply and how these
forces affect the market, we will now focus on how the forces of demand and
supply, the theory and principles, can help in analyzing Philippine economic
problems.
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What’s New
Column A Column B
1. Responsible for preparing, integrating,
manipulating, organizing, coordinating,
supervising and controlling all plans,
programs, projects and activities of the
government relative to energy
exploration, development, utilization,
distribution and conservation.
2. Tasked to contribute to the
enhancement of national security and the
protection of the territorial integrity and
national sovereignty
3. Prime mover of consumer welfare. It is
committed to protecting the rights and
interests of the consumers and
developing policies and programs aimed
at sustaining the growth and
development of the Philippine economy.
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What Is It
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2 JAPAN YEN JPY 0.008080 0.009530 0.4690
15 UNITED ARAB
DIRHAM AED 0.230850 0.272287 13.4011
EMIRATES
16 EUROPEAN
EURO EUR 1.000000 1.179500 58.0515
MONETARY UNION
Table 4 is the list of the various currencies into which the Philippines
peso is convertible. The most commonly traded currency in the world is the
US dollar. We need foreign currencies to trade with other countries. When we
buy imported brands, the importers pay for these in the currency of the
country from which we buy these goods.
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Region Number (In thousands)
Scattered all over the world, our overseas Filipino workers have been
hailed as our modern-day heroes, contributing to the growth of the economy
and sending millions of dollars to their families back home in the Philippines.
The lack of jobs in their native land, and the low wages for whatever jobs are
available are the main reasons Filipinos, both male and female, try to find
work in foreign countries. Oversupply of workers has resulted in low-wage
levels. Insufficient jobs in relation to the available labor supply has also led to
these low-wage levels since workers compete among each other for these
limited job openings. Those unwilling to work at these low-wage levels look for
greener pastures, which they find in foreign countries. They do a wide variety
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of jobs: professionals, health workers, caregivers, engineers and construction
workers, entertainers, and teachers.
Unemployment
Business cycles also lead to people losing jobs. If the economy is doing
badly, less goods will be made. Less workers are needed. People will lose
their jobs. But not all things that lead to unemployment will last long.
What happens to a country when many of the people there don’t have
jobs? It means national income goes down and the government gets less
money. They have to stop working on some projects. It is because they do not
have enough money or funds. It means they cannot finish the roads or
schools they started building. Sometimes, they need to borrow money from
other countries.
Jobs are very important because they give people money. Without
money, people can’t but the things they need. They cannot buy basic goods
like food and water.
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Source: https://www.statista.com/statistics/578722/uemployment-rate-in-philippines/
Inflation
There is inflation when the prices of goods and services are high. When
there is inflation, does this mean that the price of every good is getting
higher? The answer is no. In fact, some prices stay the same or even fall.
Other prices rise very suddenly.
Inflation is bad for many parts of the economy. It is very bad for those
who have fixed income. Fixed income means they get the same amount of
money all the time. It does not change. When prices go up, they cannot buy
as much as they need or want. Inflation is also bad when lots of people don’t
have jobs. Demand for goods and services go down when prices go up. This
means less goods are made and this leads to less jobs. Even those who have
savings in the banks have a hard time.
For example, people put money in banks. We call this money savings.
When you have savings, you can use it not only to buy goods but also to pay
money you already owe. When you borrow money from the banks, you have
to pay what you owe plus interest.
To get people to borrow money from them, every bank tries to give a
lower interest rate. But even if you had to pay a very low interest rate, you still
have to pay more for the goods you buy if there is inflation. This means you
still spend a lot of your savings. Instead of using it to buy more things, you pay
more for less goods because prices are higher. The value of your savings
goes down.
Why is inflation hard to solve? This is because of the way people act
when prices are about to go up. Let us say, Anna loves to read books. One
day, she finds out that the price of books will go up next week. What would
she do?
In this case, she might try to buy lots of books before the price goes up.
When prices keep going up, the first reaction of people is to buy more. Why
do people do this?
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They do this because they want to spend as much as they can before
prices get even higher. When prices keep going up, people want to spend
their money before its value becomes very low. But this is not good because
people will save less money.
Source: https://www.macrotrends.net/countries/PHL/philippines/inflation-rate-cpi
Taxes
We pay taxes for the government to provide public goods and services
that empower and enable individuals and institutions alike (e.g., school,
business corporation) to pursue their dreams. One example of a public good
is farm access roads for farmers to transport their produce to the cities for the
needed cash income. Another example is the public school system to educate
children of poor families out of poverty. On the other hand, an example of a
public service is restoring peace and order in war-torn areas in Mindanao by
the armed forces and police that all can resume normal life. Another example
is the regulation of business permits by the City Hall to prevent industrial
overcrowding, which can dampen the incentive to do business. In other
words, we pay taxes for the government to provide a better place where we
can exercise our freedom securely, fairly, and progressively.
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But taxes are yet our burden even as
we ultimately benefit from the public goods
and services we get in return. Taxes can
dampen the incentive to do business for the
benefit of society as they can eat up profit.
Pioneering businesses need some tax
reliefs in the early stage of market exposure
when profit is still lean. Taxes can also
distort savings, investment, and
consumption as income earners shift to
substitute to avoid the tax burden.
The main issue that hobbles the government to maximize tax benefit
while minimizing its burden is the shortfall of tax collections due to corruption.
As tax collection has even declined through the years, the budget deficit
(spending over tax revenue) has correspondingly worsened. What is worse is
that the government borrows from the public to make up for the deficit and
stretch government spending. Ultimately, repayment of public debts by
drawing on the government budget only crowds out spending especially on
the more important public goods and services. Shortfalls of tax revenues and
government spending can mean less road maintenance, books for the public
schools, medical services, and medicines for the poor, to name a few. On top
of the shortfalls, corruption misallocates spending on the not-so-important
from the more important public goods and services (Dinio, et al., 2017).
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What’s More
62
What I Can Do
Research on the dollar to peso exchange rate from the time of the presidency
of Diosdado Macapagal to the presidency of Noynoy Aquino. List down the
rates over the years and try to find reasons for abrupt increases or even
decreases in the exchange rate.
Additional Activities
63
Name:___________________________
SUMMATIVE
Date:_________________ Section: _________
TEST Teacher: _____________ Score
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______________ Reflects the consumer’s desire for a commodity.
2.
______________ It is a condition of balance or equality.
3.
______________ A condition in the market where the quantity supplied
4. is more the quantity demanded.
______________ The legal minimum price imposed by the government
5. on certain goods and services.
______________ A general increase in prices and fall in the purchasing
6. value of money.
______________ The price agreed by the seller to offer its goods or
7. services for sale and for the buyer to pay for it.
______________ Refers to the competitive environment in which
8. buyers and sellers operate.
______________ The specification by the government of minimum or
9. maximum prices for certain goods and services.
_____________ Are compulsory contributions to support the State. It
10. is considered as the “lifeblood” of a government.
Directions: Solve for Equilibrium PE and QE. Show your Solutions in Simplest
Form.
1. QD = 2333 - 105P
QS = 599 + 2515P
QD = 5,000 - 1,000 P
Where the price range is P1.00 to P5.00, derive the demand schedule
economics.
Price QD
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Cho Assessment
Post-test
Directions. Read the test items carefully and encircle the letter of your
choice that best answers the statement.
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6. It reflects the desire of the consumer for a commodity:
A. Demand C. Market
B. Supply D. Supply schedule
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C. The balancing forces of the demand and supply of the commodity
D. Any of these
14. A market structure that implies an ideal situation for the buyers and
sellers.
A. Taxes C. Permits
B. Fines D. Revenues
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Department of Education
Region X
APPLIED ECONOMICS
Score
FIRST QUARTER EXAMINATION
TEST I. MULTIPLE CHOICE: Read and analyze each item carefully. Write the letter
corresponding the best answer on your answer sheet.
A. Land C. Capital
B. Labor D. Entrepreneur
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A. The market demand of the commodity
D. Any of these
A. Deflation C. Growth
6. Demand for smart phone increases despite the increase in price, is due to a change in:
A. Supply C. Demand
7. Single firms that sell in the market and have no close substitutes.
B. Monopoly D. Oligopoly
A. Salary C. Interest
B. Rent D. Profit
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B. Command system D. Mixed system
A. Land C. Entrepreneur
B. Labor D. Capital
A. Wage C. Profits
B. Rent D. Interest
15. The economic problem that refers to the nature of goods and services the economy
should produce:
16. In a market economy, the basic economic problems are solved by:
C. A planning committee
D. The ancestors
A. Land C. Minerals
B. Capital D. Forests
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B. Taxes are compulsory contributions to support the state
20. A market structure that implies an ideal situation for the buyers and sellers.
B. Monopoly D. Oligopoly
Test II. TRUE or FALSE: Write TRUE in the space provided if the statement is correct and
FALSE if incorrect.
_____________ 2. The demand for a product is the quantity of a good that the buyers
are willing to buy at certain prices. A demand schedule shows the
different quantities that will be sold by the sellers given various
prices.
_____________ 5. The consumers’ income does not influence the demand for goods
and services. The increase in demand due to an increase in income
is not experienced in the economy.
______________ 7. The supply of a product is the quantity of goods that sellers are
willing to sell. The supply schedule shows the different quantities
that will be sold.
______________ 8. The demand curve is upward sloping to the right while the supply
curve is downward sloping.
______________ 9. When the income of the consumer increases it can shift the
demand curve upward to the right representing increase in demand.
Test III. Computation: Based on the following functions for demand and supply, compute the
demand and supply schedules:
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A. QD = 500 - 20P QS = 50 + 10P
P 5.00
P 10.00
P 15.00
P 20.00
P 25.00
B. Plot the above schedules on a single graph. Identify the equilibrium price and
equilibrium quantity.
1. QD = 2982 - 677P
QS = 659 + 3215P
2. QD = 169,712 - 22,893P
QS = 20,395P
References
73
Leańo, Roman Jr. D. Fundamentals of Economics with Agrarian Reform,
Taxation and Cooperatives (A Modular Approach). Manila, Philippines.
Mindshapers Co., Inc. 2012.
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