Applied Economics

Quarter 3 – Module 3:
Market Demand, Supply and
Equilibrium
Applied Economics – Grade 11
Alternative Delivery Mode
Quarter 1 – Module 3: Market Demand, Market Supply and Market Equilibrium
First Edition, 2020

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 Applied Economics
Quarter 1 – Module 3:
Market Demand, Market Supply
and Market Equilibrium
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear learners,
can continue your studies and learn while at home. Activities, questions, directions,
exercises, and discussions are carefully stated for you to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you step-by-
step as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge on lessons in each

SLM. This will tell you if you need to proceed on completing this module or if you
need to ask your facilitator or your teacher’s assistance for better understanding of
the lesson. At the end of each module, you need to answer the post-test to self-
check you’re learning. Answer keys are provided for each activity and test. We trust
that you will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are also
provided to our facilitators and parents for strategies and reminders on how they can
best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on any part
of this SLM. Use a separate sheet of paper in answering the exercises and tests. And
read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in answering the
tasks in this module, do not hesitate to consult your teacher or facilitator.

Thank you.

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 What I Need to Know

This module was designed to help you analyze and propose solution/s to the
economic problems using the principles of applied economics.

At the end of this module, you should be able to:

1. Differentiate the law of supply from the law of demand
2. Analyze the market demand and market supply by interpreting the demand
and supply schedule and curve
3. Appreciate how the demand and supply are influenced by price and other
several factors.
4. Determine the market equilibrium and the effect of disequilibrium

What I Know

From the word/words given below, choose what is being described in the sentence.

Price Supply Surplus

Demand curve Demand Shortage
Demand schedule Increase Equilibrium
Ceteris Paribus Decrease Supply curve
Technology Market Supply schedule

1. It refers to the number of goods that the consumer is willing

to buy.
2. It happens when the number of goods that the consumer can
produce exceeds the equilibrium quantity.
3. The amount set for the product.
4. It refers to amount of goods that the producer is willing to sell.
5. It is the point where the quantity demanded, and the
quantity supplied meets.
6. This is what happen to the demand when the price decreases.
7. Happens when the quantity available for sale is lesser than
the quantity demanded.
8. This what happens to the supply when the price decreases.
9. It is where the buyer and the seller meet.

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 10. It is a graphical representation showing the relationship of
price and demand.
11. It is a graphical representation showing the relationship of
price and supply.
12. A table that shows the quantity demanded for a product at a
given price.
13. One of the factors for a change in supply other than price.
14. A table that shows the quantity supplied in unit at a given
price.
15. It is an assumption that all other things are the same.

Lesson

1 Market Demand

What do we mean by the word market?

As an Accountancy, Business and Management (ABM) student, you will
always encounter the word “market” in your different major subjects such as in
Principles of Marketing, Business Finance and Applied Economics.
In the subject Principles of Marketing the word “Market” is usually used as
another term for customer like the target market or what we are referring as target
customer. It can also describe the place where financial instruments are offered,
the financial market.
In this module, it refers to the place where the sellers can sell their products
to their buyers/customers usually in exchange for money.

What’s New

WISH LIST
Let us check the products/services that is previously and currently in your wish
list. Categorize the products/services into different levels. Below is how you can
categorize the product/service:
Level 1: I already have it. (for those products/services that you already have
but is in your wish list before)
Level 2: Ready to buy it. (for those products/services in your wish list that
you are planning to buy within this year.)
Level 3: I want it, but I can’t afford it now. (for those products/services in
your wish list that you are planning to buy but not within this year)
Level 4: I want it, but how? (for those products/services in your wish list
that you don’t know where to buy it or of it is available in the market)

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 What is It

Demand and Supply

If our needs and wants can be backed by our buying power, it becomes
demand. It means that we have the ability and the willingness to buy the product at
a given price within a given time period. On other hand, the supply refers to the
quantity of goods and services that firms are ready and willing to sell at a given price
within a period (Viray and Avila-Bato 2018).

The Law of Demand and Supply

The law of demand states that: all other things remain constant (Ceteris
Paribus), the higher the price of a good the lesser the demand for that good and the
lesser the price the higher the demand.
The relationship between the price and demand is inversely related. It is
because of the substitution effect and income effect. Substitution effect means that
if the price of Product A increases the consumer will look for its substitute and will
cause decrease in quantity demanded for Product A. On the other hand, having the
same income, an increase in price of a product will cause a decrease in quantity
demanded because the consumer may not afford to buy all the things just like before.
The law of supply states that the quantity of products offered to be sold is
directly related with the price. It means that when the price increases the quantity
supplied increases too and if the price decreases the quantity supplied decreases too.
Analyzing Demand
The demand can be analyzed using:
A. Demand Schedule –a table that shows the price of a good and the quantity
demanded for that good at a given price within a given period.
B. Demand Curve – a graphical representation that shows the relationship
between the price of a good and the quantity demanded for that good at a
given price. It usually uses the information in the demand schedule.

Changes in Quantity Demanded compared to Changes in Demand

Changes in quantity demanded happened when there is a change in the
demand for a product because of the change in price. For example, the quantity
demanded for chicken at ₱120.00 was 10 kilos per month but when the price of the
chicken increased by ₱10.00 the quantity demanded decreased to 8 kilos. Another
increase in price of the chicken happened making it ₱140.00 per kilo because of that
the quantity demanded decreased again to 7 kilos.

Table 1: Hypothetical Demand Schedule of Chicken per Month

Without ASF
Quantity
Price/Kilogram
Demanded (kg)
₱120.00 10
₱130.00 8
₱140.00 7

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 Figure 1: Demand Curve
145

140

135
Price

130

125

120

115
0 2 4 6 8 10 12
Quantity Demanded

Figure 1 shows the graphical representation of the demand schedule in Table

1. It is negative slope showing that the price and quantity demanded are inversely
related. Table 1 and Figure 1 shows the change in quantity demanded because of the
change in price.

There is a change in demand when there is a change in quantity demanded

because of some factors other than price. For example, the quantity demanded for
chicken at ₱120.00 is 10 kilos per month but because of the issues related to ASF
(African swine flu) the quantity demanded increases to 12 kilos at the same price.
When the price the chicken increases to ₱130.00 the quantity demanded changed
to 10 kilos and 8 kilos at ₱140.00

Table 2: Hypothetical Change in Demand Schedule of Chicken

Quantity Demanded (kg)
Price/Kilogram Without ASF With ASF
₱120.00 10 12
₱130.00 8 10
₱140.00 7 8

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 Figure 2: Change in Demand

145

140

135

130 without ASF

with ASF
125

120

115

110
7 8 9 10 11 12 13 14
Quantity Demanded
Figure 2 shows the graphical representation of the demand schedule in Table
2. It shows the change in demand for chicken because of the African swine flu which
made the consumer to choose chicken meat compared to pork.
The change in demand is not always positive sometimes it falls. The change in
demand may be affected by several factors such as:
 Taste and preferences
 Income
 Seasonal products
 Population change
 Prices of related good (substitute/complementary goods)
 Expected future prices, income and credit

Analyzing Supply
The supply can be analyzed using:
A. Supply Schedule - table that shows the prices of a good and the quantity
supplied at each price at a given point of time
B. Supply Curve - a graphical representation that shows the relationship
between the price of a good and the quantity supplied at a given point of time.

Change in Quantity Supplied compared to Changes in Supply

Changes in quantity supplied happened when there is change in the quantity

of goods produced to be sold because of the change in price. It happens because
businessman or entrepreneurs prepared to sell their goods at a higher price to yield
more profit.

For instance, an online seller of chicken dishes has following supply schedule
that shows how many packs of chicken dishes he prepares at a different price.

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 Table 3: Hypothetical Supply Schedule

Selling Price/Pack Quantity supplied

₱100.00 20
₱115.00 25
₱140.00 35
₱150.00 40

Figure 3: Supply Curve

160
140
120
100
Price

80
60
40
20
0
0 5 10 15 20 25 30 35 40 45
Quantity Supplied

Figure 1 shows the graphical representation of the supply schedule in Table

3. It is positively slope showing that the price and quantity supplied are inversely
related. Table 3 and Figure 3 shows the change in quantity supplied because of the
change in price.

Changes in supply is a shift of supply curve because of some factors other

than price. For example, the quantity supplied in Table 3 changes not because of
the change in price but because of the increase in the number of online sellers
offering the same product. The table below shows the new supply schedule.

Table 4: New Supply Schedule

Selling Price/Pack Quantity supplied

₱100.00 15
₱115.00 20
₱140.00 25
₱150.00 30

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 Figure 4: Change in Supply
160

140

120

100
Price

80

60

40

20

0
15 20 25 30 35 40 45
Quantity Supplied

S S'

Figure 4 shows the blue line which is the same as supply curve shown in
Figure 3 and the orange line which shows the changes in supply curve. The entire
supply curve shifts to the left. It means that at the same price the quantity of goods
supplied by the producer decreases not because of the decrease in price but
because of the increase in the number of sellers.

Factors that can Cause Changes in Supply

 Technology
 Cost of production
 Number of sellers
 Government policies (Taxes and subsidies)
 State of nature (weather)
 Prices of related goods produced
 Future expectations (possible increase in price)

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 Market Equilibrium

QUANTITY DEMANDED = QUANTITY SUPPLIED

As stated in the law and supply and demand, market equilibrium happens
when there is an equal demand and supply causing the price to remain the same.
When the supply is greater than the demand it causes the price to decrease but when
the demand is greater than the supply the price increases.

Equilibrium market price – price agreed by the buyer and seller.

45
40 Figure 5: Market Equilibrium
35
30
25
Price

Equilibrium point
20
15
10
5
0
100 120 130 140 150 160 170
Quantity

Supply Curve Demand Curve

Figure 5 shows the equilibrium between the quantity demanded and

quantity supplied. It is the point of intersection between the supply and the
demand curves. It shows that the Equilibrium price (Pe) is 25 and the equilibrium
quantity (Qe) is 140. It means that if the price and quantity change there will be
market disequilibrium (shortage/surplus).

When the quantity supplied is greater than quantity demanded there will be
surplus. On the other hand, shortage is when the quantity demanded is greater than
quantity supplied.

Change in demand or supply may result to the changes in market equilibrium.

To protect the seller or the buyer when there is market disequilibrium the
government sets the minimum price (floor price) or maximum price (ceiling price) for
some goods, this is what we called price control.

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 What’s More

Analyze the demand and supply curves and answer the questions that follows.

DEMAND CURVE
250 A
B
200 C
D
150
PRICE

E F G H I
100 J
50
0
0 20 40 60 80 100 120
QUANTITY DEMANDED

1. How many items does a consumer want to purchase if

its price is ₱150.00?
2.________________________________________At what point does the consumer want to purchase 100
units?
3._________________________________________At what price does the consumer want to purchase 80
units?
4. Is there an increase in quantity demanded when the
price of the good decrease from ₱150.00 to ₱100.00? If yes, how many percent
is the increase? If no, how many percent is the decrease?
5. What can you say about the quantity demanded as the
price increases?

SUPPLY CURVE
250 I
H
200 G
F
150 E
PRICE

D
100 C
B
A
50

0
0 20 40 60 80 100 120
QUANTITY SUPPLIED

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 6. How many units does the producer wants to sell
at a price of 150.00?
7. From point A to D, quantity demanded
increases by how many units?
8. How much is the increase in price from point D
to point G?
9. What happened to the quantity supplied when
the price decreases?
10. Considering the supply and the demand curve,
at what price does the number of units demanded by the consumer is
the same with the number of units produced by the supplier?

What I Have Learned

Complete the paragraph by filling in the blanks based on what you have learned from
the lesson. Choose your answer from the words below.
INCREASES PRICE SCHEDULE TECHNOLOGY LESSER PREFERENCES
SUBSTITUTE PRODUCT CURVE WEATHER GOVERNMENT POLICY
SEASONAL PRODUCTS SURPLUS SHORTAGE

I learned additional lessons in Applied Economics. This week I learned about the
law of supply which states that when the increases the
quantity of products that the producer is willing to sell and
the law of demand which states that the higher the the
the demand.
To be able to analyze the demand and supply I can use the demand and supply
and the demand and supply ,a
graphical representation of the relationship of price and quantity.
I also understand that aside from price, there are other factors that may affect the
supply some of these are , ,
and . There are also factors that may affect demand like
, , and
.
I can say that it is better if there is market equilibrium which means that the
quantity supplied and the quantity demanded is the same at a given
. Market disequilibrium may also result to
or .

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 What I Can Do

LABAN o BAWI
In the given situation below, analyze what will happen to the demand, supply or
price, whether it increase or decrease. Write the word LABAN for increase and BAWI
for decrease. If there is no change do not write anything on the space provided.

1. It is the season where there is abundant supply of

mangoes in the market and because of this what will happen to the price of
the mango?
2. The demand for surgical mask increased but the
supply is limited. What will happen to the price of the surgical mask?

3. Because the increase in demand for face mask lots

of entrepreneurs produced different kinds of mask (washable, disposable, one
ply, double ply, with turban, different designs, etc. ). what will happen to the
price of the face mask?
4. The milk tea shop in our barangay has lots of
customers. Most of them buy the product because of its taste and its
affordable price. Then one day, another milk tea shop opens near our house
offering the same price. What will happen to the demand for milktea in the
first store?
5. There are different brands of coffee in the market,
but I always prefer to buy my favorite brand until its price increase by 10 %.
What will happen to the demand for my favorite brand?
6. The manufacturer of a Product A now uses new
technology making their company more productive. What will happen to the
supply?
7. The demand for sugar does not increase and the
same with the supply. What will happen to the price?
8. During the typhoon, lot of fishponds were
damaged? What will happen to the price of fish?
9. Because of the pandemic, the tourism industry was
affected. The number of tourists decrease. What will happen to the demand
for accommodation facilities?
10. Because of the existence of the internet and different apps we can
now download songs and movies easily. What happens to the demand for
DVDs?

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