MDL 2 Law of Demand and Supply

APPLIED ECONOMICS
Lesson 2.1
The Law of Supply and Demand
Module 2
The global
pandemic
changed the
pattern of
global supply
chains.
2
What caused
these changes
in prices and
supply?
3
Learning
Competency Explain the law of supply and demand, and
how equilibrium price and quantity are
determined (ABM_AE12-Ie-h-4).
4
● Identify and differentiate the different types
Learning
of market systems.
Objectives
● Differentiate between quantity demanded and

demand; and quantity supplied and supply.
● Create a demand and supply schedule.
● Construct a demand and supply curve.
● Explain how market equilibrium is achieved.
5
Which is which?
Let’s
Connect
In this activity, put yourselves in the shoes of
both buyer and seller. Choose which items to
buy or sell.
First round: You are the buyers.
6
Which would you buy?
Let’s
Connect
A. ₱1,550 B. ₱950
7
Let’s
Connect
A. ₱1,200 B. ₱700
8
Let’s
Connect
A. ₱899 B. ₱1,199
9
Let’s
Connect
A. ₱2,100 B. ₱1,799
10
Let’s
Connect
A. ₱350 B. ₱500
11
Which is which?
Let’s
Connect
In this activity, put yourselves in the shoes of
both buyer and seller. Choose which items to
buy or sell.
Second round: You are the sellers.
12
Let’s
Connect
A. ₱1,550 B. ₱950
13
Let’s
Connect
A. ₱1,200 B. ₱700
14
Let’s
Connect
A. ₱899 B. ₱1,199
15
Let’s
Connect
A. ₱2,100 B. ₱1,799
16
Let’s
Connect
A. ₱350 B. ₱500
17
In the first round, which of the following items
Let’s do you wish to buy? Why?
Connect
18
In the second round, which of the following
Let’s items do you wish to sell? Why?
Connect
19
What is the difference between the choices you
Let’s made as a buyer and as a seller?
Connect
20
Essential
Question
Why is there a need to learn fundamental

economic concepts?
21
Market
This is where buyers and sellers meet to exchange goods

and services.
22
Market
The dynamics of the

market depends on
how the government
manages it.
Two classifications:
● Free market economy
● Command economy
23
Market
Free Market Economy
● Also known as capitalism

● Adopts a laissez-faire approach with limited
government intervention
● Economic players are driven by self-interest.
24
Market
Command Economy
● Also known as socialism or communism

● The government owns most properties and resources,
and economic decisions are made through a central
economic plan.
25
Law of Demand
As prices increase,
quantity demanded
decreases. Conversely, as
prices decrease, quantity
demanded increases.
The demand curve
26
Law of Demand
Keeping factors
constant or at ceteris
paribus, buyers will
purchase more at
lower prices and less
at higher prices.
27
Law of Demand
Qd = a - b(P)
Where:
● Qd is for quantity demanded
● a is for other non-price factors
● b is for the slope of the demand curve
● P is for price
28
Law of Demand
Quantity Demanded Demand
It is the number of units It is the set of all quantities

that a buyer is willing to demanded at different
purchase at any given price levels.
price.
29
Check
Your
Progress
Is quantity demanded the same as demand?

Why or why not?
30
Juan is a school principal who plans to purchase
Let’s
Calculate notepads. His willingness and capacity to buy
notepads can be described by the equation
Qd = 150 - 3P.
Create a demand schedule and a demand curve

where the average price of a notepad is at ₱20,
₱30, and ₱40.
31
Let’s Step 1: Applying the rule of substitution, solve
Calculate for Qd using the demand function Qd = 150 - 3P.
Qd = 150 - 3P
Qd = 150 - [3(20)]
Qd = 150 - 60
Qd = 90
32
Step 2: Repeat Step 1 for price levels ₱30 and
₱40.
Let’s
Calculate
When P = 30: When P = 40:
Qd = 150 - 3P Qd = 150 - 3P
Qd = 150 - [3(30)] Qd = 150 - [3(40)]
Qd = 150 - 90 Qd = 150 – 120
Qd = 60 Qd = 30
33
Step 3: Create the demand schedule.
Let’s
Calculate
Price (P) Quantity demanded (Qd)
₱20 90
₱30 60
₱40 30
34
Step 4: Plot the points in a graph.
Let’s
Calculate
35
Check
Your Nita loves fashion. Her willingness and capacity
Progress
to buy clothes can be described by the
equation Qd = 80 - P. Create a demand
schedule and a demand curve where the
average price of clothing is at ₱25, ₱35, and
₱45.
36
Step 3: Create the demand schedule.
Let’s
Calculate
Price (P) Quantity demanded (Qd)
37
Let’s
Calculate
38
Law of Supply
As prices increase,
quantity supplied
increases. Consequently,
as prices decrease,
quantity supplied
decreases.
The supply curve
39
Law of Supply
Driven by profits,
suppliers will sell more
with higher prices and
less at lower prices.
40
Law of Supply
Qs = a + b(P)
Where:
● Qs is for quantity demanded
● a is for other non-price factors
● b is for the slope of the supply curve
● P is for price
41
Law of Supply
Quantity Supplied Supply
It is the number of units It is the set of all quantities

that a seller is willing to supplied at different price
produce at any given price. levels.
42
Check
Your
Progress
Why does the supply curve go up?
43
Rey is a friend of Juan and he sells notepads. His
Let’s
Calculate willingness and capacity to sell notepads can be
described by the equation Qs = 150 + 2P. Create a
supply schedule and a supply curve where the
average price of a notepad is at ₱20, ₱30, and
₱40.
44
Let’s Step 1: Applying the rule of substitution, solve
Calculate for Qs using the supply function Qs= 150+ 2P.
Qs= 150+ 2P
Qs= 150+ [2(20)]
Qs= 150+ 40
Qs= 190
45
Step 2: Repeat Step 1 for price levels ₱30 and
Let’s ₱40.
Calculate
When P = 30: When P = 40:

Qs = 150 + 2P Qs = 150 + 2P
Qs = 150 + [2(30)] Qs = 150 + [2(40)]
Qs = 150 + 60 Qs = 150 + 80
Qs = 210 Qd = 230
46
Step 3: Create the supply schedule.
Let’s
Calculate
Price (P) Quantity supplied (Qs)
20 190
30 210
40 230
47
Let’s
Calculate
48
Check
Your Anna is a garment manufacturer. Her
Progress
willingness and capacity to supply clothes can
be described by the equation Qs = 65 + 4P.
Create a supply schedule and curve where the
average price of clothing is at ₱25, ₱35, and
₱45.
49
Market Equilibrium
● Market equilibrium is the point where the quantity
demanded is equal to the quantity supplied.
● The price where the quantity demanded is equal to

the quantity supplied is called the equilibrium
price or the market clearing price.
50
Rearrange the letters to form the correct answer.
Try This!
Who is responsible for regulating markets?
VERMENNGOT
51
Try This!
It is where buyers and sellers meet to

exchange goods and services.
TMREKA
52
Try This!
It is the ability and willingness of buyers to
purchase goods and services.
DDUYDNAQTAMTENEI
53
Try This!
It is the ability and willingness of sellers to
produce goods and services
PQIIPLETUDNASTYU
54
Try This!
It describes the inverse relationship between
price and quantity demanded.
DMDOWEALNFA
55
● There are two market systems, free market
Wrap-Up
or capitalism, and command economy or
communism or socialism.
● Many countries adopt a mixed market

system where it adopts both capitalist and
socialist ideas.
56
Wrap-Up
● The law of supply states that as price increases,
quantity supplied increases; as price decreases,
quantity supplied also decreases. The law of
demand states that as price increases, quantity
demanded decreases; as price decreases,
quantity demanded increases.
57
● Quantity demanded and quantity supplied
Wrap-Up
reflects buyers' willingness and ability to
purchase and sellers' willingness and ability to
produce goods and services.
● Market equilibrium is the point where

quantity supplied is equal to quantity
demanded.
58
Wrap-Up ● The price at which quantity demanded and
quantity supplied are equal is called equilibrium
price or market clearing price.
59
Photo Credits
Slide 3: Courtesy of the Department of Trade and Industry.
Slide 4: 2020-04-04-Maskenproduktion COVID-19-8505 by Superbass is licensed under CC BY-SA 4.0 via Wikimedia
Commons.
Slide 13: Produce market. Batac City. Philippines. (16830189588) by Bernard Spragg. NZ is licensed under CC0 1.0 via
Flickr.
Slide 14: 1966 Leaders signing the Manila summit agreement at Malacanang Palace by manhhai is licensed under
CC BY 2.0 via Flickr.
Slide 39: Souvenir shop owner 1765 (506977642) by James Emery is licensed under CC BY 2.0 via Wikimedia
Commons.
60
Bibliography
CNN Philippines. “DTI to Allow Higher Selling Price of Face Masks.” February 7, 2020.
https://www.cnnphilippines.com/news/2020/2/7/DTI-higher-face-masks-price.html.
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.
61
APPLIED ECONOMICS
Lesson 2.2
MARKET EQUILIBRIUM
Module 2
The Philippines is an
agricultural country.
Rice is the most
important staple crop of
the country.
63
However, the country is
experiencing rice
shortage and thus,
began importing rice
from neighboring
countries.
64
Why does the Philippines
experience rice
shortage? How can the
country solve its rice
shortage issues?
65
Learning
Competency Explain how equilibrium price and quantity are
determined (ABM_AE12-le-h-4).
66
Learning
Objectives
● Explain market equilibrium.

● Apply the law of demand and supply to
illustrate how equilibrium price and quantity
are determined.
67
Essential
Question
What happens to the market when the supply

or demand changes?
68
Market Equilibrium
state of balance when
quantity demanded (qd)
is equal to the quantity
supplied (qs)
qd = q s qd qs
69
Market Equilibrium
● Equilibrium quantity is
the quantity demanded
and quantity supplied at
equilibrium (qd = qs).
● Equilibrium price (also
marketing clearing
price) is the price where
qd = qs. qd qs
70
Market Equilibrium
I would like to buy your

50 cavans of rice at
₱720 per cavan. Okay! I could sell my 50
cavans of rice at ₱720 per
cavan.
rice buyer
rice seller
71
Recall: Demand and Supply Curves
Demand curve
As the price of goods and
services increases, the
quantity demanded
decreases.
72
Recall: Demand and Supply Curves
Supply curve
As the price of goods and
services increases, the
quantity supplied also
increases.
73
Market Equilibrium
Market equilibrium exists at the point where demand and
supply curves intersect.
Market equilibrium
74
Market Disequilibrium
state of imbalance
where quantity
demanded (qd) is NOT
equal to the quantity
supplied (qs)
qs
qd
qd ≠ q s
75
Shortage
● excess demand in the
market
● quantity demanded
greater than quantity
supplied
qd
qs
qd > q s
76
Shortage
price falls below equilibrium

price
77
Example of Shortage
Demand for face masks and

its raw materials increased
as it became an essential
product due to the COVID-
19 pandemic. Hence,
shortage of face mask
occurred in the market.
78
Factors Affecting Shortage
1. increase in demand for goods and services

2. decrease in supply of goods and services
3. government interventions such as imposing
price ceilings
79
Surplus
● excess supply in the
market
● quantity demanded less
than quantity supplied qs
qd
qd < qs
80
Surplus
price is shown above

equilibrium price
81
Example of Surplus
In 2019, the Philippine

market experienced a
surplus of two million
kilograms of mangoes. At
the time, the country
produced an excess supply
of mangoes due to El Niño.
82
Factors Affecting Surplus
1. increase in supply of goods and services

2. decrease in demand for goods and services
3. government interventions such as imposing
price floor
83
Determining Market Equilibrium
Using Demand and Supply Curve
Step 1:
Combine the demand and
supply curves into one
graph. If the demand and
supply curves are already
combined in one graph,
move to the next step.
84
Using Demand and Supply Curve
Step 2:
Identify the intersection to
determine market
equilibrium and
equilibrium price. The point
where supply curve and
demand curve intersect is
the equilibrium price.
85
Let’s During disaster relief operations, charitable
Calculate
organizations conducting relief operations
usually provide instant noodles as part of its
relief packages to displaced residents in
evacuation centers. Families outside of
evacuation centers also buy instant noodles
since it is easy to cook.
86
Let’s
Calculate Thus, when you go out to buy instant noodles
in the grocery, you might see empty shelves in
the instant noodles aisle. On the next slide are
the demand and supply curves for instant
noodles when Taal volcano erupted in January
2020.
87
Let’s
Calculate
Using the graph, identify the market equilibrium

and the marketing clearing price where market
equilibrium is achieved.
88
Let’s
Calculate The market for instant noodles is in
equilibrium at 20 instant noodles (quantity)
and ₱8 per instant noodles (price). Equilibrium
price is ₱8 per pack of instant noodles.
89
Check
Your
Progress
Many consumers are shifting towards online
shopping. Online shopping sites regularly hold
sales and offer big discounts and free shipping
on repeating dates such as 6.6 on June 6, 7.7
on July 7, and so on.
90
Check
Your On a popular platform’s sale in November
Progress
2019, mobile products such as smartphones
and its accessories were the most bought
products. Based on its three-month sales, the
demand and supply curves for a certain
smartphone model are shown below.
91
Check
Your
Progress
Identify the price and quantity where market

equilibrium is reached.
92
Using Demand and Supply Schedule
Step 1: Compare the demand schedule and supply schedule.
Ideally, a table should be created to easily compare
the quantities against price.
Step 2: Identify the price at which quantity demanded under
the demand schedule is similar to the quantity
supplied under the supply schedule. This price and
quantity is where market equilibrium is achieved.
93
Let’s
Calculate
The Philippines was one of the top milkfish
producers in the world in 2010 wherein 55% of
the total milkfish production came from the
country.
94
Let’s
Calculate Since demand in milkfish was growing globally,
the country also exported milkfish to the
United States, Canada, and Japan. However, in
2019, milkfish production decreased due to
fewer production of milkfish aquaculture
facilities.
95
Let’s
Calculate Several factors contributed to this decline such
as fewer fishing operators interested in
milkfish production and the cold weather
affecting milkfish reproduction.
96
Shown on the next slide is the average price of
Let’s
Calculate milkfish per kilo, based on the local consumers’
demands and milkfish producers’ supply for
2019.
Identify the market equilibrium price, the

quantity demanded, and quantity supplied
where market equilibrium is reached.
97
Average price of bangus Demand for bangus Supply of bangus
per kilo (in kilos) (in kilos)
Let’s ₱120 1,200,000 875,000

Calculate
₱125 1,100,000 900,000
₱130 1,000,000 925,000
₱135 950,000 950,000
₱140 900,000 975,000
₱145 850,000 1,000,000
₱150 800,000 1,050,000
₱155 750,000 1,100,000
₱160 700,000 1,150,000
₱165 650,000 1,200,000
98
Let’s
Calculate
The market for bangus in 2019 is in equilibrium
at 950,000 kilos of bangus (quantity) at ₱135 per
kilo of bangus (price). Equilibrium price is
₱135 per kilo of bangus.
99
Check Seaweed is also a major aquaculture product
Your of the Philippines. About 50% of our
Progress
aquaculture products come from seaweed.
Like the bangus industry, seaweed production
also declined from 6,928.13 metric tons in
2018 to 5,469.10 metric tons in 2019 due to
ice-ice disease in seaweeds and water
pollution.
100
Check
Your Shown on the next slide is the average price of
Progress seaweed per kilo in a local market in Mindanao
for a three-month period.
Identify the equilibrium price and quantity
when the market for seaweed reached
equilibrium.
101
Average price of seaweed Demand for Supply of seaweed
Check per kilo seaweed (in kilos)
Your
(in kilos)
Progress
₱4.00 100 40
₱4.50 90 50
₱5.00 80 60
₱5.50 70 70
₱6.00 60 80
₱7.00 50 900
102
Using Demand and Supply Functions
If demand and supply function in terms of qd and qs is

given:
Step 1: If the demand and supply functions are expressed
in terms of qd and qs, equate both expressions
since qd = qs.
103
Step 2: Solve for price (P).

Step 3: Substitute the value of P to either demand or
supply function to obtain the equilibrium quantity.
104
If demand and supply function in terms of price (P) is
given:
Step 1: If the demand and supply functions are expressed
in terms of P, equate both expressions since at
equilibrium, price is the same for qd = qs.
105
Step 2: Simplify qd and qs as q.

Step 3: Substitute the value of q to either demand or
supply function to obtain the equilibrium price (P).
106
In the 2017 readership survey conducted by
Let’s the National Book Development Board, 37% of
Calculate
Filipinos are willing to spend ₱100 to ₱199 to
buy a printed new book. In that same year, the
demand function for printed new books is qd =
500 − 0.5P, while the supply function for the
same product is qs = 50 + 2P.
107
Let’s
Calculate
Using the given demand and supply functions,
solve for the equilibrium price and the quantity
at which the demand for printed new books is
equal to the supply.
108
Let’s
Calculate
The equilibrium price for printed new books is
₱180 and the equilibrium quantity is 410 books.
109
In the same 2017 readership survey, 36% of
Check
Your Filipino adults read or buy storybooks for their
Progress
children aged zero to five years old. For a given
week that year in a bookstore, the demand
function for storybooks is qd = 200 − 0.25P,
while the supply function is qs = 4 + 0.25P. Find
the equilibrium price and quantity for
storybooks in a week for the given bookstore.
110
Wrap-Up
● Market equilibrium is a state of balance
where the quantity supplied (qs) that the
sellers would like is equal to the quantity
demanded (qd) by the buyers at a given price.
111
Wrap-Up ● Equilibrium price (also called marketing
clearing price) is the price where both the
price for the quantity demanded is equal to
the price for the quantity supplied.
● The quantity demanded and quantity supplied

at equilibrium is also called equilibrium
quantity.
112
Wrap-Up ● Shortage happens when there is excess
demand. Price falls below the equilibrium
price.
● Surplus happens when there is excess supply.

Price falls above the equilibrium price.
113
Challenge The Philippines is the third-largest
Yourself
pharmaceutical market in the ASEAN region.
The pharmaceutical industry is expected to
grow by 4.5% annually from 2019–24. Fourteen
out of the 20 top pharmaceutical companies in
the world are in the Philippines.
114
Challenge In one pharmaceutical company, the annual
Yourself
demand for a drug used to treat malaria is qd =
400 − 2P, while the supply is qs = 5 + 0.5P.
Find the equilibrium price and quantity for that

drug annually.
115
Photo Credits
Slide no. 3: Old age Harvest by Sharada Prasad CS is licensed under CC BY 2.0 via Flickr.
Slide no. 36: Mangos in Cebu Carbon Market.jpg by Naplee12 is licensed under CC BY-SA 3.0, CC BY-SA 2.5, CC BY-SA
2.0, and CC BY-SA 1.0 via Wikimedia Commons.
116
Bibliography
3G E-Learning LLC, USA. Applied Economics, 2nd Edition. New York: 3G E-Learning LLC, 2018.
Boyes, William and Melvin, Michael. Fundamentals of Economics, Fourth Edition. Massachusetts: Houghton Mifflin
Company, 2009.
Flynn, Sean Masaki. Economics for Dummies, 3rd Edition. New Jersey: John Wiley & Sons, Inc., 2018.
117
APPLIED ECONOMICS
Lesson 2.3
FACTORS AFFECTING DEMAND AND
SUPPLY
Module 2
Learning
Competency
Discuss and explain factors affecting demand
and supply (ABM_AE12-Ie-h-5).
119
Learning
Objectives
● 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.
120
Learning
Objectives
● Distinguish the different sides of the labor
market.
● Analyze the effects of different factors on
labor supply and demand and on
employment and unemployment.
121
News Reading
Let’s
Connect 1. Read the article entitled
Here’s how China’s One-child
Policy Started in the First
Place and answer the
following questions.
2. Answers can be made Scan or click this!

individually or by pair. If done
by pair, share and consolidate
your answers.
122
1. Why did the Republic of China implement
the one-child policy?
Let’s
Connect
123
2. What is the likelihood that a similar policy
will be enacted in our country? Support
Let’s your answer.
Connect
124
3. In your own opinion, what might happen to
our economy if the population size is too
Let’s small? How about if it is too large?
Connect
125
Essential
Question
How can different market situations affect the

economy?
126
Movement versus Shift
Movement
● A movement along the curve shows the change in

quantity given a change in price.
● Price influences the change of either quantity

demanded or quantity supplied.
127
Movement versus Shift
Shift
● It is caused by non-price determinants or factors.
● When either demand or supply shifts, quantity

demanded or supplied changes for every price.
128
Factors Affecting Demand and
Supply
Determinants of Demand
● Tastes
● Number of buyers
● Income
● Prices of related goods
● Consumer expectations
129
Tastes
● Preference is the order of an individual’s choices

and alternatives based on their relative utility
(satisfaction).
● Demand for newer phone models shifts to the

right, while the demand for phones which lack
features shifts to the left.
130
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.
● A reduction in the number of buyers in the market

causes demand to decrease, shifting the demand
curve to the left.
131
Number of Buyers
● When people
immigrate to the
cities, demand will go
up in the cities.
● But for the towns they

emigrated from,
demand will go down.
132
Number of Buyers
Demand can also

depend on buyers’
characteristics.
133
Income
● If demand for a good increases as income
increases, the good is considered a normal good.
○ Example: Electricity
● Inferior goods are goods and services that vary

inversely with income.
○ Example: Canned goods
134
Prices of Related Goods
● Substitutes
○ Goods that are demanded or consumed in place

of another good
○ When the price of one good increases, the

demand for another good increases, and vice
versa
135
● Complements
○ Goods that are demanded or consumed along

with other goods.
○ When the price of one good increases, the
demand for another good decreases, and vice
versa.
136
● Unrelated Goods
○ Are goods where the demand is independent of

the price of other goods.
○ When the price of one good increases or

decreases, it does not affect the other good's
demand.
137
Check
Your
Progress
What are examples of substitutes,

complements, and unrelated goods?
138
Consumer Expectations
Expectations for a future price increase will influence the
demand for goods and services today.
139
Demand Shift to Market
Equilibrium
When the demand curve shifts

to the right (D to D*), the
equilibrium quantity increases
(Q to Q*). The equilibrium price
will also increase (P to P*) to
keep the market in equilibrium.
140
Demand Shift to Market
Equilibrium
When the demand shifts to the

left (D to D*), the equilibrium
quantity decreases (Q to Q*).
The equilibrium price also
decreases (P to P*) to keep the
market in equilibrium.
141
Factors Affecting Demand and
Supply
Determinants of Supply
● Resource prices
● Technology
● Taxes and subsidies
● Prices of other goods
● Number of producers
● Producer expectations
142
Cost of Input
● Higher costs means lower

profits and producers will
supply less at any given price.
● If the cost of production

decreases, producers will
supply more at any given price.
143
Technology
Any improvement in
technology or techniques
in production enable
firms to produce more.
144
Taxes and Subsidies
● Taxes are compulsory

contributions to the government.
● Subsidies are special grants by

the government in financial aid,
tax exemptions, or privileges.
145
Prices of Other Goods
● If the price of one good is high in the market, it
encourages producers to make it more than other
goods.
● But if the price of the other good is higher, the

producer will change their production and create
more of the other good.
146
Check
Your
Progress
Based on the example, what substitute goods
can a firm create aside from volleyballs and
basketballs?
147
Number of Producers
● When there are more producers, the overall

supply will increase, and the supply curve will shift
to the right.
● When there are less producers, the overall supply

will decrease, and the supply curve will shift to the
left.
148
Producers’ Expectations
● Expectations about a product's future price affect

the willingness and ability of a producer to supply
a product.
● However, it isn't easy to predict how producers will

react to an increase in the future price.
149
Producer Expectations
● Producers can withhold some products to reap

more profits in the future.
● Producers can expand their production and make

more products.
150
Supply Shift to Market
Equilibrium
When the supply curve shifts to

the right (S to S*), the
equilibrium quantity increases
(Q to Q*). The equilibrium price
increases to keep the market in
equilibrium (P to P*).
151
Supply Shift to Market
Equilibrium
When the supply shifts to the

left (S to S*), the equilibrium
quantity decreases (Q to Q*).
The equilibrium price increases
(P to P*) to keep the market in
equilibrium.
152
The Labor Market
● Labor demand is the
amount of labor employers
seek to hire over a period
of time
● When wages increase,

employers will demand
fewer labor, and vice versa.
153
The Labor Market
● Labor supply is the
amount of labor offered for
hire over a particular
period.
● When wages are lower,

fewer people are willing to
work, and vice versa.
154
The Labor Market
The amount of labor that is being hired at the
equilibrium wage is called equilibrium employment.
155
The Labor Market
The market-clearing wage

is where any increase or
decrease in wage pressures
would cause a labor surplus
or a labor shortage.
156
The Labor Market
● Labor shortage happens
when labor demand is
greater than labor supply.
● Labor surplus is when

labor supply is greater
than labor demand.
157
The Labor Market
● Minimum wages are price floors for labor.
● These are imposed based on the required level of

income in order to support daily living.
● Wages are known to be sticky, or resistant to a decline

or an increase.
158
Non-wage Determinants of Labor Demand
● Demand for output

● Technology
● The number of companies
● Government regulations
● Price and availability of
other inputs
159
Demand for Output
● When the demand for goods increases, producers

are encouraged to create more to reap more
profits.
● When the demand for goods decreases, producers

are discouraged to produce more.
160
Technology
Technology can
complement or replace
existing labor.
161
Technology
Example:
The tools of digital

marketing can replace the
people behind print
advertising.
162
Number of Companies
● When more companies are producing a product, it

increases labor demand.
● And if fewer companies are producing, it

decreases labor demand.
163
Government Regulations
● When government regulation requires colleges

and universities to hire professors with at least a
master’s degree, there will be an increase in labor
demand for master’s degree holders
● Likewise, there will be a decrease in labor demand

for people with fewer qualifications
164
Price and Availability of Other Inputs
● As the amount of
other input increases,
labor demand will also
increase.
● If the number
decreases, labor
demand will also
decrease. 165
Non-wage Determinants of Labor
Demand
The Effect of Different Non-Wage Factors to
Unemployment
When different non-wage factors

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.
166
Demand
Unemployment
When these factors decrease

overall labor demand, it swells
the number of available workers,
resulting in a low employment
rate.
167
Supply
● Number of workers
● Required education
● Government policies
168
Non-wage Determinants of Labor Supply
Number of Workers
An increased number of
workers will cause a
rightward shift of the
supply curve.
169
Required Education
When people are

required to have more
education, training, and
skills, it can cause a
decrease in labor supply.
170
Supply
Government Policies
● The government may support, or even require,

rules that set high qualifications for certain jobs.
● The government may subsidize education and

training, or even lower the required level of
qualifications.
171
Supply
Government Policies
● 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.
172

Unemployment
● If different non-wage factors can increase the overall
labor supply when labor demand is constant, then it
increases the number of available workers.
● The increase in available workers results in a rise in the

unemployment rate.
173

Unemployment
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.
174
● There are different non-price determinants for
Wrap-Up 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. 175
● Given the other factors and demand constant, a
Wrap-Up 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.
176
Wrap-Up ● 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.
177
The TRAIN law exempts a large number of working-
class Filipinos from income tax.
Challenge
Yourself
1. Which side is affected? Demand or supply?
2. Which direction will the curve shift? Left or
right?
3. What happens to the equilibrium price after the
shift? Increase or decrease?
4. What happens to the equilibrium quantity after
the shift? Increase or decrease?
178
Photo Credits
Slide no. 4: Equal by Ryan Spiering is licensed under CC BY 3.0 via The Noun Project
Slide no. 18: Moving Out - Pisa by FaceMePLS is licensed under CC BY-2.0 via Wikimedia Commons.
Slide no. 31: taxes by Luis Prado is licensed under CC BY 3.0 via The Noun Project.
Slide no. 31: Dividend by parkjisun is licensed under CC BY 3.0 via The Noun Project.
Slide no. 61 to 65: finger heart by Jhonatan is licensed under CC BY 3.0 via The Noun Project.
Slide no. 61 to 65: thumbs down by GraphiteSword is licensed under CC BY 3.0 via The Noun Project.
179
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.
180

MDL 2 Law of Demand and Supply

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MDL 2 Law of Demand and Supply

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APPLIED ECONOMICS

● Differentiate between quantity demanded and

● Create a demand and supply schedule.

● Construct a demand and supply curve.

● Explain how market equilibrium is achieved.

First round: You are the buyers.

Second round: You are the sellers.

Why is there a need to learn fundamental

This is where buyers and sellers meet to exchange goods

The dynamics of the

● Also known as capitalism

● Also known as socialism or communism

The demand curve

Quantity Demanded Demand

It is the number of units It is the set of all quantities

Is quantity demanded the same as demand?

Create a demand schedule and a demand curve

The supply curve

Quantity Supplied Supply

It is the number of units It is the set of all quantities

Why does the supply curve go up?

When P = 30: When P = 40:

● The price where the quantity demanded is equal to

Who is responsible for regulating markets?

It is where buyers and sellers meet to

● Many countries adopt a mixed market

● Market equilibrium is the point where

● Explain market equilibrium.

What happens to the market when the supply

I would like to buy your

price falls below equilibrium

Demand for face masks and

1. increase in demand for goods and services

price is shown above

In 2019, the Philippine

1. increase in supply of goods and services

Using the graph, identify the market equilibrium

Identify the price and quantity where market

Identify the market equilibrium price, the

Let’s ₱120 1,200,000 875,000

₱130 1,000,000 925,000

₱135 950,000 950,000

₱140 900,000 975,000

₱145 850,000 1,000,000

₱150 800,000 1,050,000

₱155 750,000 1,100,000

₱160 700,000 1,150,000

₱165 650,000 1,200,000

If demand and supply function in terms of qd and qs is

Step 2: Solve for price (P).

Step 2: Simplify qd and qs as q.

● The quantity demanded and quantity supplied

● Surplus happens when there is excess supply.

Find the equilibrium price and quantity for that

2. Answers can be made Scan or click this!

How can different market situations affect the

● A movement along the curve shows the change in

● Price influences the change of either quantity

● It is caused by non-price determinants or factors.

● When either demand or supply shifts, quantity

● Preference is the order of an individual’s choices

● Demand for newer phone models shifts to the

● An increase in the number of buyers in the market

● A reduction in the number of buyers in the market