Name: ____________________________Grade and Section: _______________ Class Code: _________

Module 3: Introduction to Applied Economics

Content Standards: Performance Standards:

The learners demonstrate an understanding of The learners are able to conduct a survey of current
the law of supply and demand, and factors economic situations within the vicinity
affecting the economic situation
Lesson Overview:

This week’s module will take you to the economic interplay of demand and supply, the importance of
equilibrium and the economic decision making.

I. INTRODUCTION
Lesson 1: Law of Demand and Supply

Most Essential Learning Competency: - Analyze market demand, market supply and market
equilibrium
- Determine the implications of market pricing on economic
decision making
Time Frame:
Printed References:  Applied Economics for Senior High School by
Carlos Manapat; C & E Publishing, Inc. 2018
 Prinicples of Economics Simplified by Edilberto B.
Viray, Jr. et al: Anvil Publishing 2018
Online Resources: Links:
 https://www.econlib.org/library/
Online Apps: 
Teacher’s Account (for online
consultation/follow-ups)
II. Learning Activities
EXPLORE
Activity No. 1
Instructions. Do the introductory activity in your book page 42. Write your answer on this space.

Product Brand Why this brand is used

1.

2.

3.

4.
Page16

5.

ABM 12 Specialized- Principles of Applied Economic

 B. Firm-Up
Activity No. 1
Instructions. Read the corresponding assigned text for module topic as well as the added excerpts. After
which accomplish each task provided.

The basic law in economic is the law of demand and supply and this is vivid in the market. Let first define
market. A market is where buyers and sellers meet. It is the place where they both trade or exchange
goods and services--- in other words, it is where their transactions takes place. There are different kinds of
markets, such as wet and dry. A wet market is where people usually buy vegetables, meat, etc. On the
other hand, a dry market is where people buy shoes, clothes or other dry products. However, in economic
parlance, the term market does not necessarily refer to a tangible area where buyers and sellers could be
seen transacting. It can represents an intangible domain where goods and services are traded, such as the
stock markets, real estate market, or labor market—where workers offer their services, and employers
look for workers to hire.

Based on what you have read, what are some defining characteristics of a market? Is such characteristics
conform to our own experience as to what is “market”?

Law of Demand
One of the most important building blocks of economic analysis is the concept of demand. When economists
refer to demand, they usually have in mind not just a single quantity demanded, but a demand curve, which
traces the quantity of a good or service that is demanded at successively different prices. On page 43 of your
book gives you the definition of demand.

On this law is built almost the whole edifice of economics. The law of demand states that when the price of a
good rises, the amount demanded falls, and when the price falls, the amount demanded rises. How do this
law of demand applies? From page 43 to 48 your book gives you the technical way of how the law of
demand is all about, but how do you understand it?

The law of demand states that when the price of a good rises, the amount demanded falls, and when the price
falls, the amount demanded rises. Some of the modern evidence supporting the law of demand is from
econometric studies which show that, all other things being equal (ceteris paribus), when the price of a good
rises, the amount of it demanded decreases. How do we know that there are no instances in which the
amount demanded rises and the price rises? A few instances have been cited, but most have an explanation
that takes into account something other than price. The main reason economists believe so strongly in the
law of demand is that it is so plausible, even to non-economists. Indeed, the law of demand is ingrained in
our way of thinking about everyday things. Shoppers buy more durian when they are in season and the price
is low. This is evidence for the law of demand: only at the lower, in-season price are consumers willing to
buy the higher amount available. Similarly, when people learn that typhoon will strike the in the highland
Baguio, they know that the price of vegetables will rise. The price rises in order to reduce the amount
demanded to the smaller amount available because of the typhoon. This is the law of demand. We see the
same point every day in countless ways. No one thinks, for example, that the way to sell a house that has
Page16

been languishing on the market is to raise the asking price. Again, this shows an implicit awareness of the
law of demand: the number of potential buyers for any given house varies inversely with the asking price.
Indeed, the law of demand is so ingrained in our way of thinking that it is even part of our language. Think
of what we mean by the term “on sale.” We do not mean that the seller raised the price. We mean that he or
she lowered it in order to increase the amount of goods demanded. Again, the law of demand.
Can you illustrate some examples coming from your own experience how the law of demand works?

ABM 12 Specialized- Principles of Applied Economic

 For example, during the New Year the price of mango has risen by as much as 200%, from 50 to up 250 or 300,
using what you have learned about demand, can you explained in details what you think has taken place?

Many non-economists are skeptical of the law of demand. A standard example they give of a good whose
quantity demanded will not fall when the price increases is water. How, they ask, can people reduce their use
of water? But those who come up with that example think of drinking water or household consumption as
the only possible uses. Even here, there is room to reduce consumption when the price of water rises.
Households can do larger loads of laundry or shower quickly instead of bathe, for example. The main users
of water, however, are agriculture and industry. Farmers and manufacturers can substantially alter the
amount of water used in production. Farmers, for example, can do so by changing crops or by changing
irrigation methods for given crops.

What the skeptics may have in mind is not that people would not cut back their purchases at all when the
price of a good increases, but that they might cut back only a little. Economists have considered this
thoroughly and have developed a measure of the degree of cutback, which they call the “elasticity of
demand.” The elasticity of demand is the percentage change in quantity demanded divided by the percentage
change in price. The greater the absolute value of this ratio, the greater is the elasticity of demand. When
there is a close substitute for one firm’s brand, for example, a small percentage increase in that firm’s price
may lead to a large percentage cut in the amount of the firm’s good demanded. In such a case, economists
say that the demand for the good is highly elastic. On the other hand, when there are few good substitutes for
a firm’s product, the firm might be able to raise its price substantially with only a small decrease in the
quantity demanded resulting. In such a case, demand is said to be highly inelastic.

Based on what you have read, what are some skepticism about the law of demand? What are their arguments and
do you in a way agree or disagree with them?

Interestingly, though, if a firm is in a position whereby it can increase a price substantially and reduce sales
only a little, and if its owners want to maximize PROFITS, the firm is well advised to raise the price until it
reaches a portion of the demand curve where demand is elastic. Otherwise, the firm is forsaking an increase
Page16

in revenue that it could have had with no increase in costs. One important implication of this fact is that the
elasticity of demand in a market is a negative test for whether the firms are acting together as a MONOPOLY.
If, at the existing price, the elasticity of the market demand for the good is less than one, that is, if the
demand is inelastic, then the firms are not acting monopolistically. If the elasticity of demand exceeds one—
that is, if the demand is elastic—then we do not know whether they are acting monopolistically or not.

It is not just price that affects the quantity demanded. Income affects it too. As real income rises, people buy
more of some goods (which economists call “normal goods”) and less of others (called “inferior goods”).
Urban mass transit and railroad transportation are classic examples of inferior goods. That is why the usage
of both of these modes of travel declined so dramatically as postwar incomes were rising and more people
could afford automobiles (in Europe and America). ENVIRONMENTAL QUALITY is a normal good, and that
ABM 12 Specialized- Principles of Applied Economic
is a major reason why the world have become more concerned about the environment in recent decades.

Another influence on demand is the price of substitutes. When the price of Toyota Camrys rises, all else
being equal, the quantity of Camrys demanded falls and the demand for Nissan Maximas, a substitute, rises.
Also important is the price of complements, or goods that are used together. When the price of gasoline
rises, the demand for cars falls.

Page 49 to 61 of your book gives you the technical aspect of supply as well as equilibrium. Let’s get through
it. One function of markets is to find “equilibrium” prices that balance the supplies of and demands for
goods and services. An equilibrium price (also known as a “market-clearing” price) is one at which each
producer can sell all he wants to produce and each consumer can buy all he demands. Naturally, producers
always would like to charge higher prices. But even if they have no competitors, they are limited by the law
of demand: if producers insist on a higher price, consumers will buy fewer units. The law of supply puts a
similar limit on consumers. They always would prefer to pay a lower price than the current one. But if they
successfully insist on paying less, suppliers will produce less and some demand will go unsatisfied.
What are some major points being discussed in the previous paragraph? How can each discussed points help our
understanding on the dynamics of the law of demand?

Economists often talk of “demand curves” and “supply curves.” (in reality it is really a curve but in the
discussion it is presented in a straight line in a quadrant) A demand curve traces the quantity of a good that
consumers will buy at various prices. As the price rises, the number of units demanded declines. That is
because everyone’s resources are finite; as the price of one good rises, consumers buy less of that and,
sometimes, more of other goods that now are relatively cheaper. Similarly, a supply curve traces the quantity
of a good that sellers will produce at various prices. As the price falls, so does the number of units supplied.
Equilibrium is the point at which the demand and supply curves intersect—the single price at which the
quantity demanded and the quantity supplied are the same.

Markets in which prices can move freely are always in equilibrium or moving toward it. For example, if the
market for a good is already in equilibrium and producers raise prices, consumers will buy fewer units than
they did in equilibrium, and fewer units than producers have available for sale. In that case producers have
two choices. They can reduce price until supply and demand return to the old equilibrium, or they can cut
production until the quantity supplied falls to the lower number of units demanded at the higher price. But
they cannot keep the price high and sell as many units as they did before.

Why the quantity does supplied rise as the price rises and fall as the price falls? The reasons really are quite
logical. First, consider the case of a company that makes a consumer product. Acting rationally, the company
will buy the cheapest materials (not the lowest quality, but the lowest cost for any given level of quality). As
production (supply) increases, the company has to buy progressively more expensive (i.e., less efficient)
materials or labor, and its costs increase. It charges a higher price to offset its rising unit costs.
Page16

Or consider the case of a good whose supply is fixed, such as apartments in a condominium. If prospective
buyers suddenly begin offering higher prices for apartments, more owners will be willing to sell and the
supply of “available” apartments will rise. But if buyers offer lower prices, some owners will take their
Why do you
apartments offthink its important
the market for number
and the us as students of economics
of available to understand
units will drop. the law of demand?

ABM 12 Specialized- Principles of Applied Economic

 How does your understanding of the law of demand change in a way your perspective of what is happening in the
market?

Further discussion and firm up activities will be provided during our consultation period.

C. Deepen
Instructions: Using the space provided, answer the discuss and apply portion and performance task A on
your book page 63.

Page16

ABM 12 Specialized- Principles of Applied Economic

 D. TRANSFER
1. In a graph sheet draw: a. demand curve b. supply curve

2. In a graph sheet plot:

a. Hypothetical Demand Schedule for Rice per Month

Situation Price (P) Quantity (Kg)

A 5 8
B 4 13
C 3 20
D 2 30
E 1 45

b. Hypothetical Supply Schedule for Rice per Month

Situation Price (P) Quantity (Kg)

A 5 48
B 4 41
C 3 30
D 2 17
E 1 5

c. Hypothetical Demand and Supply Schedule for Rice per Month

Situation Price Quantity Demanded Quantity Supply

(Qd) (Qs)
A 5 8 48
B 4 13 41
C 3 20 30
D 2 30 17
E 1 45 5

3. Identify the following:

a. equilibrium point
b. surplus area
c. shortage area

4. What the implication of your demand curve as well as your supply curve.

IV. SUMMATIVE ASSESSMENT/EVALUATION

Summative and Assessment will be announce during one of our consultation period.
PLEASE DO MAKE SURE YOU ARE TO ATTEND THE BY GROUP SESSIONS FOR
CONSULTATION AND DISCUSSION as well as for ANNOUNCEMENT.

IV. SUPPLEMENTAL/INTERVENTION ACTIVITY

Supplemental and Intervention activity will be provided as needed.
Page16

Prepared by: Grace D. Marin Checked by: Emmanuel L. Templa

Principles of Applied Economics Teacher Subject Area Coordinator

Student’s Name and Section: Date Submitted:

ABM 12 Specialized- Principles of Applied Economic