Unit 2: Law of Demand and Supply

Lesson 2.3
Factors Affecting Demand and Supply

Contents
Introduction 1

Learning Objectives 2

Let’s Connect 2

Discover 4
Movement versus Shift 4
Determinants of Demand 5
The Effect of Changes in Demand to Market Equilibrium 9
Determinants of Supply 10
The Effect of Changes in Supply to Market Equilibrium 13
The Labor Market 14
Shifts in Labor Demand 17
Shifts in Labor Supply 19

In Philippine Context 21

Wrap-Up 22

Try This! 22

Challenge Yourself 24

Photo Credit 26

Bibliography 26
Unit 2: Law of Demand and Supply

Lesson 2.3

Factors Affecting Demand and

Supply

Introduction
The COVID-19 pandemic has forced businesses to change the way they operate. Businesses
have started looking for ways to go digital and deliver their products and services safely with
minimal physical contact. It has forced them to think creatively and innovatively, as well as
be flexible with their business models. They also need to cope with the changing
preferences of consumers in unprecedented times.

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Previously, we talked about how prices influence the quantity demanded and supplied. In
this lesson, we will talk about the different non-price factors of supply and demand. Note
that in studying this lesson, it is essential to consider the effects of one factor on another
while holding all variables constant (ceteris paribus). Several factors can influence a
particular market phenomenon.

Learning Objectives DepEd Learning Competency

At the end of this lesson, you should be able to
In this lesson, you should be able to do the discuss and explain factors affecting demand and
following: supply (ABM_AE12-Ie-h-5).

● Explain the different factors that

affect supply and demand.
● Analyze the effects of different
market situations in supply and
demand, as well as market
equilibrium.
● Distinguish the different sides of
the labor market.
● Analyze the effects of different
factors on labor supply and
demand and on employment and
unemployment.

Let’s Connect

News Reading 10 minutes

This activity requires you to read an article and answer the following questions.
Instructions
1. Read the article entitled Here’s how China’s One-child Policy Started in the First Place
and answer the questions below.

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Here’s how China’s One-child Policy Started in the First Place

Tessa Berenson, “Here’s how China’s One-child Policy Started in
the First Place,” Time, October 29, 2015,
https://time.com/4092689/china-one-child-policy-history/, last
accessed on November 17, 2020.

2. Answers can be done individually or in pairs. For students who will be working in
pairs, discuss your opinion with your partner then consolidate.

Guide Questions
1. Why did the Republic of China implement the one-child policy?
__________________________________________________________________________________________
__________________________________________________________________________________________
____________________________________________________________________________________

2. What is the likelihood that a similar policy will be enacted in our country? Support
your answer.
__________________________________________________________________________________________
__________________________________________________________________________________________
____________________________________________________________________________________

3. In your opinion, what might happen to our economy if the population size is too
small? How about if it is too large?
__________________________________________________________________________________________
__________________________________________________________________________________________
____________________________________________________________________________________

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Discover
Movement versus Shift
Before reading the rest of the lesson, it is important to understand the difference between a
movement and a shift. The law of supply and demand explains the relationship between
price and quantity demanded or quantity supplied. Changes in quantity demanded and
supplied are illustrated through the supply and demand curve. A movement along the
curve shows the change in quantity given a change in price. As shown in Figure 1, the
quantity demanded moved from 55 to 40 when the price increased from 10 to 12. The
demand curve did not shift but instead, the change in price was reflected through a
downward movement of the data point along the curve.

Fig. 1. Movement along the demand curve

The same movement is observed in the supply curve when there are changes in price. In
Figure 2, the quantity supplied increased from 55 to 75 when the price increased from 16 to

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22. Similar to the demand curve, the supply curve did not shift; instead, the change in price
was reflected through an upward movement of the data point along the curve.

Fig. 2. Movement along the supply curve

Market supply and demand are influenced by various factors other than price, which are
known as non-price factors. These other factors can cause the demand or supply to
increase or decrease. Changes in demand or supply are reflected through shifts in the
curve. In a shift, the quantity demanded or supplied changes with every price.

How can different factors affect the market?

Determinants of Demand
The following are non-price factors that affect demand (ceteris paribus): consumers’ taste or
preferences, consumers' population size, consumers’ income, consumers’ expectations, and
the prices of related goods. When demand increases, the demand curve shifts to the right.
On the other hand, when demand decreases, the demand curve shifts to the left.

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Consumers’ Tastes and Preferences

Preference is the order of an individual’s choices and alternatives based on their relative
utility (satisfaction).

For example, when an individual decides to buy a new phone, he or she will have to choose
from a range of options. In choosing which phone to buy, the individual may decide based
on brand, functionality, or popularity. Mobile phones that were released in early 2000 had
features such as a numeric keypad and a long battery life. The screen was small and the
display was in monochrome.

Cellular phone technology has evolved, and new features have become available. Phones
were upgraded to include a camera, internet connectivity, and work applications. Because of
the new features, demand for newer phone models increased, while demand for phones
which lacked features decreased.

Number of Buyers
Demand can also be influenced by the number of buyers. An increase in the number of
buyers in the market causes the demand to increase, shifting the demand curve to the right.
On the other hand, a reduction in the number of buyers in the market causes demand to
decrease, shifting the demand curve to the left.

An example is people's mobility. When people immigrate to the cities from towns, demand
will go up in the cities as there are more people now buying goods and services. But in the
towns from which they emigrated, demand will go down.

The number of buyers in the market can also change based on the buyers’ characteristics
such as gender, age, race, etc. For example, if there is an increase in the number of elderly
in the population, then it is likely that there will be an increase in the demand for health and
senior care as more of them need them. Likewise, if the number of school-aged youth in the
population increases, demand for education will likely increase as more children need
schooling.

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Income
Income is money earned in exchange for providing goods or services. Individuals can earn
income through providing labor or through selling goods. An increase in income results in
the increased purchasing power of the individual. Conversely, when individuals are earning
less, they tend to consume less. When people have increased purchasing power, they can
increase their current consumption or change their consumption.

If demand for a good increases as income increases, the good is considered a normal good.
While if demand for a good decreases as income increases, the good is considered an
inferior good. Consumption of electricity is an example of a normal good. When the
household’s income increases, electricity consumption can also increase. Having the
capability to pay for more encourages households to use more electricity. Demand for
electricity rises, causing the demand curve to shift to the right. When household income
decreases, electricity demand will decrease, and the demand curve will shift to the left.

On the other hand, canned goods or instant noodles may be considered inferior goods. That
is, as the income of the individual increases he or she may opt to purchase fresh meat or
make noodles from scratch. This results in the demand for canned goods or instant noodles
decreasing, shifting the demand curve to the left.

Prices of Related Goods

When the price of a good changes, the demand for other goods may increase or decrease.
● Substitutes are goods that are demanded or consumed in place of another good. If
people find it costly to consume fried chicken, they may find a substitute such as
grilled fish. In this case, the demand for fried chicken decreases, while the demand
for grilled fish increases.

When the price of one good increases, the demand for another good increases.
And when the price of one good decreases, the demand for another good
decreases.

● Complements are goods that are demanded or consumed along with other goods.
One complement for fried chicken would be gravy. When the price of fried chicken

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increases, the demand for gravy decreases. This is because the cost of the chicken
could make it more difficult for consumers to purchase gravy.

Likewise, when the price of fried chicken falls, the demand for gravy will increase.
This occurs because the decrease in price enables a consumer to have more
purchasing power to acquire other goods.

When the price of one good increases, the demand for another good decreases.
when the price of one good decreases, the demand for another good increases.

● Unrelated goods are goods where the demand is independent of the price of other
goods. For example, even when the demand for shampoo increases, the price of
chicken or grilled fish would not change, and vice versa.

When the price of one good increases or decreases, it does not affect the
demand for the other good.

Check Your Progress

What are examples of substitutes, complements, and unrelated
goods?
________________________________________________________________________
________________________________________________________________________
__________________________________________________________________

Consumer Expectations
Expectations on future price increase may influence the demand for goods and services
today. In the Philippines, the Department of Trade and Industry usually advises consumers
to purchase items early to avoid the rising prices during December, by which time the
demand for noche buena items increases, shifting the demand curve to the right. After
Christmas and New Year, the demand for these goods will gradually decrease, shifting the
demand curve to the left.

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The Effect of Changes in Demand to Market Equilibrium

Different factors of demand can cause changes in the market equilibrium. Changes in
demand are reflected through shifts in the demand curve. In analyzing the individual effect
of changes in demand in market equilibrium, other factors will be considered constant (or
ceteris paribus); supply will also be held constant.

Fig. 3. Market equilibrium when the demand curve shifts to the right

As shown in Figure 3, when the demand curve shifts to the right (from D to D*), the
equilibrium quantity increases (from Q to Q*). When the equilibrium quantity rises, but the
level of supply is the same, the equilibrium price of the good will increase (from P to P*) to
keep the market in equilibrium. If the price in the market stays at P, then there will be a
shortage.

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Fig. 4. Market equilibrium when the demand curve shifts to the left

As shown in Figure 4, when the demand curve shifts to the left (from D to D*), the
equilibrium quantity decreases (from Q to Q*). When the equilibrium quantity decreases,
but the level of supply is the same, the equilibrium price of the good will decrease (from P to
P*) to keep the market in equilibrium. If the price in the market stays at P then there will be
a surplus.

Determinants of Supply
The following are the non-price factors affecting supply: cost of input, technology, taxes and
subsidies, prices of other goods, number of producers, and producer’s expectations. When
supply increases, the supply curve shifts to the right. On the other hand, when supply
decreases, the supply curve shifts to the left.

Cost of Input
In producing different goods or services, businesses use various resources or input. For
example, to make halo-halo, these are the ingredients: cream, leche flan, ube ice cream,
beans, gulaman, cereal, and shaved ice. If the price of one of these ingredients increases,
the costs of creating halo-halo increases as well. Since higher costs mean lower profits, the
halo-halo stand owner will produce less at any given price. The decrease in the supply of

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halo-halo will cause the supply curve to shift to the left. On the other hand, if the cost of
producing halo-halo decreases, the owner may want to supply more at any given price.

Technology
Improvements in technology or techniques in production enable firms to produce more. The
ability to produce more lowers the cost of producing goods, which in turn increases profit.
Given the improvement in technology or production techniques, producers may want to
increase their supply. Examples of improvement in technology or production techniques
include the automation of production lines in manufacturing and the modification of rice
grains for increased resilience towards bad weather conditions.

If there are no investments or improvements in technology, production can become

inefficient. The wear and tear of equipment can result in an increase in maintenance costs,
which increases total production costs. When the total cost increases, producers are
discouraged from producing more to prevent further losses. It causes the supply curve to
shift to the left.

Taxes and Subsidies

The level of supply is also affected by the government through taxes imposed or subsidies
given. Taxes are compulsory contributions to the government. On the other hand,
subsidies are special grants by the government in the form of financial aid, tax exemptions,
or privileges.

Increased taxation on firms discourages them from producing more to avoid losses, causing
the supply to decrease. Other regulations imposed by the government also reduce supply,
an example of which is the limit on carbon emission. On the other hand, when firms are
given subsidies, firms are encouraged to produce more. Subsidies reduce the cost of
producing goods which increases supply.

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Prices of Other Goods

When a firm produces, for example, basketballs, they can also use their resources to make
alternative goods such as volleyballs. If the price of volleyballs increases, producers of
basketballs may switch to producing volleyballs to increase profits. The firm's substitution
in production results in a decline in the supply of basketballs, which causes a shift to the left.
Alternatively, when the costs of producing volleyballs increase relative to the cost of
producing basketballs, producers may decide to create more basketballs instead, making
the supply shift to the left.

When the price of basketballs is high in the market, it encourages producers to make more
basketballs than volleyballs. But if the price of volleyballs is higher, the producer will change
their production and create more volleyballs than basketballs.

Check Your Progress

In the above example, what are some other substitute goods a firm
can create aside from volleyballs and basketballs?
________________________________________________________________________
________________________________________________________________________
__________________________________________________________________

Number of Producers
Supply is also influenced by the number of producers in the market. For example, when
there is only one rice dealer in a community, the community's rice supply depends on how
much the rice dealer can provide. In this case, the supply is very limited. However, if there
are more rice dealers in the community, the overall rice supply will increase. The increase in
the number of rice dealers will cause the supply curve to shift to the right. When rice dealers
move out of the community, the community's rice supply will decrease, causing the curve to
shift to the left.

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Producers’ Expectations
Expectations about a product's future price affect the willingness and ability of a producer
to supply a product. However, it is not easy to predict how producers will react to an
increase in the future price.

Suppose that the price of winter clothes increases every December, garment producers may
withhold their supplies to increase profits due to high prices. However, this may cause the
present supply to decrease and shift to the left.

In contrast, manufacturing industries may increase and expand production because of new
information. For example, in light of the COVID-19 pandemic, it is expected that people will
continuously wear face masks. In response, firms will increase the supply of face masks.

The Effect of Changes in Supply to Market Equilibrium

Similar to demand, different factors of supply can cause changes in the market equilibrium.
In analyzing the individual effect of changes in supply in market equilibrium, other factors
will be considered constant (or ceteris paribus); demand will also be held constant.

Fig. 5. Market equilibrium when the supply curve shifts to the right

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As shown in Figure 5, when the supply curve shifts to the right (from S to S*), the equilibrium
quantity increases (from Q to Q*). But when the equilibrium quantity rises and the level of
demand is the same, the equilibrium price of the good decreases (from P to P*) to keep the
market in equilibrium. There will be a surplus if the market price stays at P.

Fig. 6. Market equilibrium when the supply curve shifts to the left

As shown in Figure 6, when the supply curve shifts to the left (from S to S*), the equilibrium
quantity decreases (from Q to Q*). But when the equilibrium quantity falls and the level of
demand is the same, the equilibrium price of the good increases (from P to P*) to keep the
market in equilibrium. If the price in the market stays at P then there will be a shortage.

The Labor Market

Just like goods, the labor market consists of labor demand and labor supply. Labor demand
is the number of labor employers seek to hire over a period of time. The labor demand is
graphically shown through the labor demand curve. The downward sloping curve of
demand represents the inverse relationship between wage and quantity or labor
demanded. When wages, the price of labor, increase, employers will demand lesser labor.
When wages are low, employers will demand more labor.

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Fig. 7. The labor demand curve

Labor supply is the amount of labor offered for hire over a particular period. Labor supply
is graphically shown through the labor supply curve. The upward sloping curve of supply
describes the positive relationship between wage and quantity or labor supplied. When
wages are lower, fewer people are willing to work. When it is higher, more people are willing
to work.

Fig. 8. The labor supply curve

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In a competitive labor market, equilibrium occurs when quantity supplied equals quantity
demanded, generating the equilibrium wage w* and equilibrium employment E*. Every
employer who wants to hire workers can find willing workers, and every worker who wants
to work can find work. The amount of labor that is being hired at the equilibrium wage is
called equilibrium employment. It is also the number of workers at labor market
equilibrium. The equilibrium wage (w*) is also called the market-clearing wage. It is the
level where any upward or downward wage pressures would cause a labor surplus or a
labor shortage.

Fig. 8. The labor market equilibrium, where w* is the equilibrium wage or market-clearing
wage, and E* is the equilibrium labor quantity

A labor shortage happens when labor demand is greater than labor supply. As shown in
Figure 9, labor shortage occurs when the prevailing wage is lower than the equilibrium
wage. Lower wages encourage employers to hire more workers.

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Fig. 9. Labor surplus and shortage

In contrast, a labor surplus is when labor supply is greater than labor demand. It also
happens when the prevailing wage is higher than the equilibrium wage. Higher wages
discourage employers from hiring more workers. As a result, too many workers are
competing for the same number of jobs.

Compared to the goods and services market, the labor market does not adjust quickly to
market forces. Minimum wages are price floors for labor wages. These are imposed based
on the required level of income in order to support daily living. Wages are also known to be
“sticky” or resistant to a decline or an increase. There exists a silent contract between
workers and employers that wages are only to change positively. In case of an economic
contraction, the firm will layoff and retrench workers to prevent further losses.

Shifts in Labor Demand

Along with wages, there are different non-wage determinants of labor demand such as
demand for output, education and training, technology, number of companies, and
government restrictions.

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1. Demand for output. When the demand for the goods produced (output) increases,
given that price is still the same, profitability increases. As a result, producers are
encouraged to produce more and increase demand for labor in order to expand
production. When this happens, the demand curve shifts to the right.

Furthermore, when the demand for goods decreases, given that price is still the
same, profitability decreases. Producers are discouraged from producing more,
decreasing demand for labor. In this case, the labor demand curve shifts to the left.

2. Technology. Technology changes can either complement or replace existing labor.

For example, digital marketing is gradually replacing print advertising. If this is so,
demand for laborers involved in paper printing such as print masters, etc. will
decrease.

3. The number of companies. When more companies are producing a given product,
it increases labor demand. In the Philippines, there are about two major telecom
companies. If a third telecom player participates, it can increase the number of
available jobs within the industry. For example, the Chief Administrative Officer of a
certain telecom mentioned that they would increase their workforce by 600 at the
end of the year 2020. This increase could cause labor demand to shift right.

When fewer companies are producing, it will decrease labor demand, resulting in a
leftward shift of the labor demand curve.

4. Government regulations. Government regulations can increase or decrease labor

demand. In the education sector, government regulation requires colleges and
universities to hire professors with, at least, a master's degree. It increases the need
for master's degree holders, causing a rightward shift in the labor demand curve.

Professionals with fewer qualifications are less likely to be hired, and the labor
demand for these workers shifts to the left.

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5. Price and availability of other input. Labor is only one of the types of production
input. There is a certain time of the year where sardines can be caught along the
Zamboanga Peninsula. When fish can be harvested, fishing companies demand more
labor to help catch fish. As the amount of other input increases, labor demand will
also increase.

However, when the closed season starts, fishing companies cannot sail the seas to
catch fish, and they will lay off people to prevent further losses. As the number of
other inputs decreases, labor demand will also decrease.

When different non-wage factors can increase the overall labor demand given the same
level of labor supply, this reduces the number of available workers. In this case, the
unemployment rate can decrease. When these factors decrease the overall labor demand, it
swells the number of available workers, resulting in a low employment rate.

Shifts in Labor Supply

Aside from wages, there are non-wage determinants of labor supply such as the number of
workers, required education, and government policies.

1. The number of workers. An increased number of workers will cause a rightward

shift to the supply curve. The increase in labor supply can be caused by immigration,
an increasing population size, an aging population, and changing demographics.

When countries have more relaxed immigration policies, it can cause an increase in
labor supply. In contrast, strict immigration policies can decrease the labor supply.

Population grows when birth rates are greater than death rates. There's an eventual
increase in labor supply when more people reach working age. However, an aging
population will decrease the labor supply since more workers are in their retirement
age.

Demographic changes can also apply to women. The increase in women's

participation in the labor force also increases labor supply.

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2. Required education. When people are required to have more education, training,
and skills, it can cause a decrease in labor supply. For example, if employers will
require a college degree for manual labor work, there will be a lower number of
laborers available given a higher educational requirement.

3. Government policies. Government policies can also influence labor supply. The
government may support, or even require, rules that set high qualifications for
certain jobs, such as academic training, certificates or licenses, or experience. When
these qualifications are made more challenging, labor supply will decrease at any
given wage.

The government may subsidize education and training, or even lower down the
required level of qualifications. For example, the Commission on Higher Education's
scholarship programs encourage more students to study and eventually be
work-ready. These subsidies can shift the labor supply curve to the right.

Additionally, government policies can change the relative desirability of working

versus not working. Government policies can include unemployment benefits,
maternity leave, child care benefits, and welfare policy. When the government
creates policies prioritizing child care benefits, this may increase the labor supply of
working mothers. Meanwhile, long-term unemployment benefits may discourage job
searching for the unemployed. All government policies should be meticulously
designed and planned to minimize any adverse effects on labor supply.

If different non-wage factors can increase the overall labor supply when labor demand is
constant, it increases the number of available workers. The increase in available workers
results in a rise in the unemployment rate. In contrast, when these factors reduce the
overall labor supply when labor demand is constant, it decreases the number of available
workers, resulting in a higher employment rate.

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In Philippine Context
Impacts of TRAIN Fuel Excise Taxes on Employment and Poverty
By: Czar Joseph Castillo, Ramon Clarete, Marjorie Muyrong, and Philip Tuaño

The first package of the Tax Reform for Accelerated Inclusion (TRAIN 1) Law took effect in
January 2018. This package focuses on adjustments in income brackets and personal
income tax rates, excise tax rates, and value-added tax coverage, among others. In
general, personal income taxes are lowered for most taxpayers and raised for individuals
with higher incomes. Among the commodities covered by the excise tax adjustments are
fossil fuels and petroleum products, automobiles, and sugar-sweetened beverages.

When the TRAIN law was created, it raised the minimum taxable income. This increase
creates opportunities for more working-class Filipinos to save and increase their
disposable income. However, the government also raised taxes on goods to compensate
for the decrease in income tax. The effect of the TRAIN law was also felt by the industries
that rely on coal and fuel like electric utilities. Because of this, firms are pushed to pass
their costs to consumers.

The writers concluded that poverty incidence increased because of the implementation of
TRAIN 1.

Impacts of TRAIN Fuel Excise Taxes on Employment and Poverty

Czar Joseph Castillo, Ramon Clarete, Marjorie Muyrong, and Philip
Tuaño, “Impacts of TRAIN fuel excise taxes on employment and
poverty,” Philippine Institute of Developmental Studies (Philippine
Institute of Developmental Studies, October 2019),
https://pidswebs.pids.gov.ph/CDN/PUBLICATIONS/pidspn1910.pdf,
last accessed on November 13, 2020.

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Wrap-Up
_____________________________________________________________________________________________
● There are different non-price determinants for both demand and supply. An
increase in demand or supply causes the curves to shift to the right, while a
decrease in demand or supply causes the curves to shift to the left.
● Given the other factors and supply constant, a rightward shift in the demand
curve will result in an increase in equilibrium price and quantity. Likewise, a
leftward shift in the demand curve will result in a decrease in equilibrium price
and quantity.
● Given the other factors and demand constant, a rightward shift in the supply
curve will result in a decrease in equilibrium price but an increase in equilibrium
quantity. Likewise, a leftward shift in the supply curve will result in an increase in
equilibrium price but a decrease in equilibrium quantity.
● The labor market consists of labor demand or the number of labor employers seek
to hire and labor supply or the amount of labor offered for hire.
● When the labor supply curve and labor demand curve intersect, both the
equilibrium wage and equilibrium quantity are made.
● The labor market does not adjust more quickly than the goods and services market
because of sticky wages, where wages are resistant to a decline or an increase.
_____________________________________________________________________________________________

Try This!
A. Modified True or False. Write true if the statement is correct. Otherwise, if the
statement is false, write false.

_____________ 1. An increased number of workers will cause a leftward shift to the

supply curve.

_____________ 2. Any effect that they can put into demand and supply can cause these
curves to shift.

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_____________ 3. Movements are caused by non-price determinants.

_____________ 4. Shifts are caused by price.

_____________ 5. The consumption or demand for inferior goods varies inversely with
income.

_____________ 6. If the consumption of a good or demand for a good increases as

income increases, the good is considered a normal good.

_____________ 7. Complements are goods that can be used in place of another good.

_____________ 8. Substitutes are goods that can be used with another good.

_____________ 9. The increase in available workers results in an increased

unemployment rate and a decreased employment rate.

_____________ 10. Technology can act as a substitute by replacing human employees.

B. Fill in the Blanks. Fill in the missing words to make the statement correct.

1. When two goods are substitutes, the demand for another good ____________ when the
price of one good increases. And when the price of one good decreases, the demand
for another good ____________.
2. When two goods are complements, the demand for another good ____________ when
the price of one good increases. And when the price of one good decreases, the
demand for another good ____________.
3. When different non-wage factors can increase the overall labor demand, this
____________ the number of available workers.

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Challenge Yourself
Analysis. Analyze the situations below. Supply the correct answer for each column. Once
completed, prepare a one-paragraph conclusion to your analyses.

Column A: Which side is affected? Write D for demand and S for supply.

Column B: To which direction will the curve shift? Write < for left and > for right.

Column C: What happens to the equilibrium price after the shift? Draw an upward arrow,
⬆, for an increase, and draw a downward arrow, ⬇, for a decrease.

Column D: What happens to the equilibrium quantity after the shift? Draw an upward
arrow, ⬆, for an increase, and draw a downward arrow, ⬇, for a decrease.

Situation A B C D

The TRAIN law exempts a large number of

working-class Filipinos from income tax.

The government raises taxes for firms.

An increase in the price of garlic affects onions.

The schools respond to the SHS voucher program

of DepEd.

A sorter machine was brought in for vegetable

farmers.

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__________________________________________________________________________________________________
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Suggested Rubric for Grading

The rubric below is a suggested one. Your teacher may modify the rubrics based on your
needs. Consult your teacher for the final rubric.

Performance Levels

1 2 3 Suggested
Criteria Score
Beginning Proficient Advanced Weight
Proficiency Proficiency

Content Analyses look limited; Analyses are Analyses are

the explanation is well-versed; the well-versed and
×5
inadequate. explanation is substantial; the
adequate. explanation is good.

Organization Sentences have Sentences are Sentences are very

limited functional enough, functional, with a
functionality, where with a good transition logical transition and
×3
there is little to no and structure. structure.
transition and
structure.

Grammar There is limited use There is a good use of There is a great

of vocabulary, vocabulary, spelling, command of
×2
spelling, and syntax. and syntax. vocabulary, spelling,
and syntax.

Total Possible Score 30

2.3. Factors Affecting Demand and Supply 25

Unit 2: Law of Demand and Supply

Photo Credit
Manila, Philippines: Pizza Taxi in Makati Business District by Uwe Aranas is licensed under
CC BY-SA 4.0 via Wikimedia Commons.

Bibliography
Mankiw, N. Gregory. Principles of Economics. 6th ed. Mason, Ohio: South-Western Cengage
Learning , 2012.

McConnell, Campbell R, Stanley L Brue, and Sean M Flynn. Economics: Principles, Problems,
and Policies. New York, New York: McGraw-Hill/Irwin, 2009.

Greenlaw, Steven A, and Timothy Taylor. “Demand and Supply at Work in Labor Markets.” In
Principles of Economics, 4–1. Houston, Texas: OpenStax, 2017.
https://openstax.org/books/principles-economics/pages/4-1-demand-and-supply-at-
work-in-labor-markets.

2.3. Factors Affecting Demand and Supply 26

 Unit 2: Law of Demand and Supply

2.3 Factors Affecting Demand and Supply

Let’s Connect
1. Why did the Republic of China implement the one-child policy?
The government of ROC implemented the one-child policy in response to food
shortages and famine.
2. What is the likelihood that a similar policy will be enacted in our country? Support
your answer.
Answers may vary. It is possible that a similar approach will be enacted if the
government has enough resources to curb the population boom. However, the
country's values about the importance of family and the sanctity of the unborn will
deter the government from doing so.
3. In your opinion, what might happen to our economy if the population size is too
small? How about if it is too large?
Answers may vary. If the population size is too small, the government may face the
problem of an aging population where fewer young people will have to shoulder
health care costs for older people. And when the population is too large, the
government has the problem of providing the basic needs of everyone.

Check Your Progress

1. What are examples of substitutes, complements, and unrelated goods?
Answers may vary. Examples of the three types include shoes and sandals, shoes
and socks, shoes and pants. Let the students get creative.
2. Based on the example above, what other substitute goods a firm can create aside
from volleyballs and basketballs?
Answers may vary. If the learners are thinking of the same firm, they can think of
footballs. But if they want to think of other firms, they can create other similar pairs
of items.

2.3. Factors Affecting Demand and Supply 27

 Unit 2: Law of Demand and Supply

Try This!
A. Modified True or False. Write true if the statement is correct. Otherwise, if the
statement is false, write false.

false 1. An increased number of workers will cause a leftward shift to the supply
curve.

true 2. Any effect that they can put into demand and supply can cause these
curves to shift.

false 3. Movements are caused by non-price determinants.

false 4. Shifts are caused by price.

true 5. The consumption or demand for inferior goods varies inversely with
income.

true 6. If the consumption of a good or demand for a good increases as income

increases, the good is considered a normal good.

false 7. Complements are goods that can be used in place of another good.

false 8. Substitutes are goods that can be used with another good.

true 9. The increase in available workers results in an increased unemployment

rate and a decreased employment rate.

true 10. Technology can act as a substitute by replacing human employees.

B. Fill in the Blanks. Fill in the missing words to make the statement correct.

1. When two goods are substitutes, the demand for another good increases when the
price of one good increases. And when the price of one good decreases, the
demand for another good decreases.

2.3. Factors Affecting Demand and Supply 28

 Unit 2: Law of Demand and Supply
2. When two goods are complements, the demand for another good decreases when
the price of one good increases. And when the price of one good decreases, the
demand for another good increases.
3. When different non-wage factors can increase the overall labor demand, this
reduces the number of available workers.

Challenge Yourself

Situation A B C D

The TRAIN law exempts a large number of D > 🙂 🙂

working-class Filipinos from income tax.

The government raises taxes for firms. S < 🙂 ☹️

An increase in the price of garlic affects onions. D < ☹️ ☹️
The schools respond to the SHS voucher program S > ☹️ 🙂
of DepEd.

A sorter machine was brought in for vegetable S > ☹️ 🙂

farmers.

One-paragraph conclusion:
Answers may vary. Students’ responses should explain how demand and supply are
affected by various economic factors, including labor demand, labor market, labor supply,
availability of resources, etc. Examples provided in the questions found in the table could
also be linked to these economic concepts for further discussion.

2.3. Factors Affecting Demand and Supply 29