IMPLICATIONS OF MARKET

PRICING IN MAKING
ECONOMICS
GROUP 2

Joco Villanueva Mikaela Bacolor

Jusper Ignacio Marife Cameja

Prince Buela Elaiza Selorio

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09
The Marketing Price System
Last module, we talked about the market demand, market
supply and market equilibrium.
Shortage
Is when there is an excess demand for the quantity
supplied. While surplus is excess in supply.
Demand
is the willingness of the consumers to buy goods and services.
Ineconomics, the willingness to buy goods and services shouldbe
accompanied by the ability to buy, also called the “purchasing
power”.
PRICE SYSTEM IN A MARKET ECONOMY: ITS
CHARACTERISTICS
PRICE
Acts as a signal for shortages and surpluses which help firms and
consumers respond to changing market conditions.
IF A GOOD IS IN SHORTAGE
Price will tend to rise. Rising prices discourage demand, and
encourage firms to try and increase supply.
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.

Prices help to redistribute resources from goods with little demand

to goods and services
 MARKET PRICE SURPLUS

The market price is the point that the

supply and demand curves intersect. The chart shows a surplus – the quantity is
greater than demand. When quantity is greater
than demand it causes prices to go down.
 PRICES ARE MARKET DRIVEN
The producers can make what they
want and consumers are free to purchase
what they want. This means that
customers live in a market economy.
When prices are high, supply increases as
many firms join the market

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Law of Supply and Demand
The law of supply and demand explains the interaction between the sellers of a product and
the buyers. It shows the relationship between the availability of a particular product and the
desire (or demand) for that product has on its price.

The demand curve is always

downward sloping due to the
law of diminishing marginal
utility.

The law of supply demonstrates the

quantities that will be sold at a given
price. The higher the price, the higher
The quantity supplied and
vice versa.
How Do Supply and Demand Create an Equilibrium
Price?
The Equilibrium price is the price at
which a producer can sell all the goods
he wants to produce and a buyer can
buy all the units he wants. The
demand curve is upward sloping, while
the supply curve is downward sloping -
this is due to the law of diminishing
marginal utility.
 PRICE ELASTICITY OF DEMAND AND SUPPLY
Measures the responsiveness of the quantity demanded or supplied of a good to
a change in its price. Elasticity can be described as: a) elastic or veryresponsive
and b) unit elastic, or inelastic or not very responsive.

Elastic demand or Inelastic demand or Unitary elasticity

supply curve supply curve means that a given
percentage changes in
indicates that quantity is one where a
price leads to
demanded or supplied given percentage change
an equal percentage
respond to price changes in in price will cause a smaller
change in quantity
a greater percentage change in
demanded or
than proportional quantity demanded or
supplied. supplied.
manner.
 CATEGORIES OF PRICE ELASTICITY
ACCORDING TO AGARWAL, P. (2018) AND JUDGE, S. (2020), THERE ARE FOUR
CATEGORIESMOF PRICE ELASTICITY ARE THE FOLLOWING:
I. THE PRICE ELASTICITY OF DEMAND
The value of the elasticity of demand - or how much quantity demanded
changes, given a change in the price of goods or services is one of the
most important figures in economic theory and is often referred to as the
Price Elasticity of Demand Index .
II. THE INCOME ELASTICITY OF DEMAND (YED)
Income elasticity of demand (YED) is the relationship between changes in
demand for a good and changes in real income. As income rises, the
proportion spent on cheap goods will reduce and people will buy more
expensive goods. YED is positive as consumers can afford to spend more
on quality goods.
 III. CROSS PRICE ELASTICITY OF DEMAND OR (XED)
The cross price elasticity of dmand (XED) is the effect on the
change in demand of one good as a result of a change in price
related to another product. XED =% change in quantity
demanded of good X%. Change in price of good. Y - two goods
are unrelated if the value of XED is zero.
IV. PRICE ELASTICITY OF SUPPLY (PES)
Supply is the responsiveness of quantity to a change in price. If
supply is elastic, producers can increase output without a rise in cost
or a time delay. If production is inelastic, firms find it hard to change
production in a given time period. PES = % change in quantity.
Supplied% change in Price; Pes = infinity = supply is perfectly elastic.
DETERMINANTS OF PRICE ELASTICITY OF SUPPLY
1. Marginal Cost- If the cost
of producing one more unit
keeps rising as output rises,
marginal cost rises rapidly.
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.
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.
DETERMINANTS OF PRICE ELASTICITY OF SUPPLY

4. Mobility of Factors of 5. Capacity- If firms have

Production- If factors of spare capacity, the price
production are movable, the elasticity of supply is elastic.
price elasticity of supply
tends to be more elastic.
 I, KINDLY CHOOSE THE CORRECT ANSWER
1. Over ______ price elasticity of supply tends to become more
elastic. Theproducers would increase the quantity supplied
by a larger percentage than an increase in price.
A. TIME C. NUMBER OF FIRMS
B. CAPACITY D. MARGINAL COST
2. A ________________ shows the relationship between quantity
demanded andprice in a given market on a graph.
A. PRICE C. DEMAND CURVE
B. SUPPLY D. COST
 A. PRICE C. Supply Curve
B. Equilibrium D. The Law of Supply

3. The _______ occurs where the quantity demanded is equal

to the quantity supplied.
4. The __________________________ states that, higher the price,
the higher the quantity supplied.
5. The __________ ________shows an upward slope.

II, DRAW IF THE STATEMENT IS TRUE AND IF IT IS FALSE

6. The demand curve is always downward sloping due to the
law of diminishing marginal utility.
 7. The price is below the equilibrium point, the quantity
demanded is lesser than the quantity supplied.
8. If demand for a good or service is static even when the
price changes, demand is said to be inelastic
9. Inelastic demand is when a demanded quantity for masks
changes by a greater percentage compared to its
percentage change in price
10. Group 2 topic is Market Demand, Market Supply and
Market Equilibrium