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ABM-APPLIED ECONOMICS 12 - Q1 - W4 - Mod4
ABM-APPLIED ECONOMICS 12 - Q1 - W4 - Mod4
Department of Education
National Capital Region
DIVISION OF CITY SCHOOLS – MANILA
Manila Education Center Arroceros Forest Park
Antonio J. Villegas St. Ermita, Manila
Applied Economics
ons of Market Pricing in Making Economic D
https://www.thoughtco.com/supply-and-demand-practice-questions-1146966
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HOW TO USE THIS MODULE
e other task/s that may disturb you while enjoying the lessons. Read the simple instructions below to
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LESSON
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EXPECTATIONS
Are you excited to to learn new sets of knowledge? Let us check your
knowledge about the topic. Have fun learning!
Directions: Please analyse the graph and answer the questions below. Write
your answer on the space/s provided for each question.
1) 2)
https://study.com/academy/lesson/characteristics-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
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Shortage _
Equilibrium price _
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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:
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
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!
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LOOKING BACK TO YOUR LESSON
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
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BRIEF INTRODUCTION
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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”.
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 Price acts as a signal for shortages and
prices; consumers can buy surpluses which help firms and consumers
whatever they want; nor can respond to changing market conditions.
producers make and sell
whatever they want
If a good is in shortage – price will tend to rise.
Rising prices discourage demand, and
Prices are decided by
encourage 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.
Let us
The market price is the point that theanalyze
supply the
andchart curves intersect. (Judge, S. 2020
below.
demand
Figure 1.
The Equilibrium Point or the Market Price Point
https://study.com/academy/lesson/characteristics-of-the-price-
system-in-a-market-economy.html
https://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_dem
and.html
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The Law of Demand
Again, what is a demand? We said last time that itThe is the
demand
desirecurve
of a consumer
is always downward
to purchasesloping
goods
If all other factors remain equal, the higher the price of a good, the fewer people will demandthat
“the higher the price, the lower the quantity demanded” and vice versa. (source: Investopedia)
https://www.ducksters.com/money/supply_and_demand.php
The Law of Supply
The law of supply demonstrates the quantitiesThe
that
lawwill
of be sold at
supply a given
says price . The higher the pric
……………….
The quantity supplied and vice versa. “as the price of a product
increases, companies will produce
more of the Product”.
https://www.ducksters.com/money/supply_and_demand.php
price is the price at which a producer can sell all the units he wants to produce and a buyer can b
The demand curve is downward sloping. This is due to the law of diminishing marginal utility.
The supply curve is a vertical line; overtime, supply curve slopes upward; the more suppliers ex
In the Equilibrium point, the two slopes will intersect. The market price is sufficient to induce s
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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.
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Figure 4 Price Elasticity of Demand
a) Elastic Demand (PED > 1) - the percentage change in price brings about
a more than proportionate change in quantity demanded.
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).
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• YED = % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑑𝑒𝑚𝑎𝑛𝑑 % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜𝑚𝑒
Normal Goods – are those goods for which the demand rises as consumer income
rises; positive income elasticity of demand so as consumers’ income rises more is
demanded at each price. These goods shift to the right as income rises.
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)
If supply is elastic, producers can increase output without a rise in cost or a time delay. If supp
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.
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:
A) + 2 B) + 0.5 C) - 0.5 D) – 2
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Learning Module for Applied Economics
B) Analysis on price elasticity
A) Solution:
REMEMBER
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Learning Module for Applied Economics
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.
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Learning Module for Applied Economics
POST-TEST
2. If demand for a good or service is static even when the price changes,
demand is said to be inelastic
4. The law of demand states that “elasticity shows how much a good or
service is demanded relative to its movement in price”.
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Learning Module for Applied Economics
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?
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
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Learning Module for Applied Economics
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-markets-
for-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-price- elasticity-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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