Republic of the Philippines

Department of
Education National
Capital Region
DIVISION OF CITY SCHOOLS – MANILA
Manila Education Center Arroceros Forest Park
Antonio J. Villegas St. Ermita, Manila

Applied Economics
Implications of Market
Pricing in Making Economic
Decisions

https://www.thoughtco.com/supply-and-demand-practice-questions-1146966

Quarter 1 Week 4 Module 4

Learning Competency
Determine the implications of market pricing in making economic decisions

1
 HOW TO USE THIS MODULE
o set aside other task/s that may disturb you while enjoying the lessons. Read the simple instructions below to succe

ctions indicated in every page of this module.

t the lessons. Writing enhances learning that is important to develop and keep in mind.
module.
nswers using the answer key card.
y what you have learned.

PARTS OF THE MODULE

 Expectations - These are what you will be able to know
after completing the lessons in the module.
 Pre-test - This will measure your prior knowledge and the
concepts to be mastered throughout the lesson.
 Looking Back to your Lesson - This section will measure what
learnings and skills did you understand from the previous lesson.
 Brief Introduction- This section will give you an overview of
the lesson.
 Activities - This is a set of activities you will perform with a
partner.
 Remember - This section summarizes the concepts
and applications of the lessons.
 Check your Understanding - It will verify how you learned from
the lesson.
 Post-test - This will measure how much you have learned from
the entire module

2
 LESSON Implications of Market Pricing in Making Economic
4

EXPECTATIONS

Specifically, this module will help you to:

1. determine the implications of market pricing in making

economic decisions
2. explore the elasticity of demand and supply
3. solve problems on price elasticity of demand and supply
4. value the implications of market pricing in decision making
PRE-TEST

Are you excited to to learn new sets of knowledge? Let us check your
knowledge about the topic. Have fun learning!

Part I. Graph Analysis

Directions: Please analyse the graph and answer the questions below. Write
your answer on the space/s provided for each question.

When do you have a When do you have a

surplus in the supply of shortage in the
product? supply of product?

1) 2)

https://study.com/academy/lesson/characteristics-of-the-price-system-in-a-market- economy.html

3. Using the chart above, kindly describe the point where there is a
a) surplus
b) shortage
c) equilibrium in price
4. What is surplus, shortage and equilibrium price? Define the terms.
Surplus
Shortage _
Equilibrium price _

3
Part II. Multiple Choice Questions

Directions: Please read the statements carefully. Encircle the correct answer.

1. In the market, the price elasticity for the demand of canned goods sold by
Aling Puring Grocery Store is the:

a) ratio of the percentage change in quantity demanded for the goods to the
percentage change in its price
b) responsiveness of revenue to a change in quantity of the canned goods
c) ratio of the change in quantity demanded divided by the
change in its price of the canned goods
d) response of revenue to a change in the price

2. If demand for sacks of rice in Aling Puring Grocery Store is price elastic, then a:
a) rise in the price of sacks of rice will raise total revenue of the grocery
b) fall in the price of sacks of rice will raise total revenue of the store
c) fall in the price of sacks of rice will lower the quantity demanded
d) fise in the price of sacks of rice won't have any effect on total revenues

3. If the cross-price elasticity between soap bar and liquid soap commodities is 1.5,
a) the two goods are luxury goods
b) the two goods are complements
c) the two goods are substitutes
d) the two goods are normal goods

4. The price elasticity of demand for a certain good tends to be:

a) smaller in the long run than in the short run
b) smaller in the short run than in the long run
c) larger in the short run than in the long run
d) unrelated to the length of time

5. If the price elasticity of supply of cup noodles is 0.60 and the price increase by
3 percent, then the quantity supplied for cup noodles increases by how by?
a) 0.60 percent.
b) 0.20 percent
c) 1.8 percent
d) 18 percent

Show me your solution here

https://global.oup.com/us/companion.websites/9780199811786/student/chapt2/multiplechoice/

Great job! You finished answering the questions. You may now request your
facilitator to check your work. Congratulations and keep on learning!

4
 LOOKING BACK TO YOUR LESSON

As we go further, let us try to recall the concepts of market demand,

market supply and market equilibrium. Please perform this.

PART I. TRUE OR FALSE

Directions: Write TRUE if the statement is correct and FALSE if tincorrect.
Write your answer on the space provided for each number.
1. The equilibrium point is the level where the demand and supply
curves intersect.
2. If the price is above the equilibrium level, the quantity
demanded is greater than the quantity supplied.
3. If the price is below the equilibrium point, the quantity
demanded is lesser than the quantity supplied.
4. The law of demand applies during online sales of computers
when consumers rush to buy products at 30% discounts.
5. The law of supply applies when the producers supply more masks at a
higher price; selling at higher quantity at a higher price increases revenue.
6. If the price is below the equilibrium level, then the quantity
demanded will exceed the quantity supplied.
7. Shortage will exist if the price is below the equilibrium point
8. The law of supply and demand explains the interaction between
the sellers of a product and the buyers.
9. The demand curve is always downward sloping due to the law of
diminishing marginal utility.
10. The supply curve shows an upward slope.

PART II Make Meaning Internet Assisted Activity

Directions: Give the meaning of the following words/phrases. You may use
the internet to substantiate your ideas.
Price Elasticity Price Elasticit
Price Elasticity

5
 BRIEF INTRODUCTION

Market Pricing on Making Economic Decisions

Please read this article on Demand, Supply and Elasticity of Clean Water in
the Philippines. This will help you understand better our new lesson. Enjoy
reading!

Demand, Supply and Elasticity of Clean Water in the Philippines

8/27/2015
According to an article created by Vice News, there are 55
people who die in the Philippines every day because of the
lack of clean water. As one can see clean water is greatly
needed by all people. As a student who is lucky to be given
all the necessities needed in life it would be normal not to
think of this because we normally do not notice it. However,
we need to. According to Katrina Arianne Ebora, who works
for UNICEF’s Water, Sanitation and Hygiene program in the
Philippines stated that “Over 30 million people in the
Philippines do not have access to improved sanitation
facilities.” Also, according to the PIS by 2050 the population
of the areas with poverty in Manila will reach over 9 million!
With the rising population of the Philippines there will be a
problem with the economy of clean water because there will
be too much demand for the supply of water. .
https://redmonteconomics.weebly.com/blog/demand-supply-and-elasticity-of-clean-water-in-the-philippines

The Marketing Price System

Last module, we talked about the market demand, market supply and
market equilibrium. In our new topic, we will link more of these variables to
the market price system. For example, in the article above, the causes and
effects of the water shortage around the Philippines could be best explained if
we could understand the concepts of demand and supply elasticity of the
clean water.
A shortage is when there is an excess demand for the quantity supplied. While surplus is excess
For example, if there are 10 bottles of water and there are 20 students who want drinking these, then there
If producers make too many bottles of water and consumers cannot by them want to buy them, there will be su

Price System in a Market Economy

Let us find out more about the price system. We have learned that
demand is the willingness of the consumers to buy goods and services. In
economics, the willingness to buy goods and services should be
accompanied by the ability to buy, also called the “purchasing power”. This
is referred to as an effective demand (source: Investopedia).

6
 EQUILIBRIUM CHARACTERISTICS
Equilibrium is a point of balance or The supply and demand are
a point of rest. It is also called balanced in equilibrium.
“market-clearing price”.

Equilibrium price is the price at The economic forces are balanced

which the producer can sell all the and in the absence of external
units he wants to produce and the influences, the (equilibrium) values
buyer can buy all the units he wants of economic variables will not
change.

Quantity demanded and quantities The amount of goods or services

supplied are equal. sought by buyers is equal to the
amount of goods or services
produced by sellers.

Are you enjoying the lesson? Let us proceed to the next topic.
Price System in a Market Economy: Its Characteristics

Let us learn more! The prices of goods that we encounter

everyday to the things we buy plays a crucial role in determining an
efficient distribution of resources in a market system. The prices will
help us to make every day economic decisions about our needs and desires.
They are the indications of the acceptance of a product; the more popular
the product, the higher the price that can be charged.

Example is when a tables are for sale in your community today and is
assumed that they are not very important as compared to other products or
commodities that we need to survive especially that aour movements are very
limited.

Neither the producers

nor consumers can impact Price acts as a signal for shortages and
prices; consumers can buy surpluses which help firms and consumers
whatever they want; nor can respond to changing market conditions.
producers make and sell
whatever they want
 If a good is in shortage – price will tend to rise.
Rising prices discourage demand, and
Prices are decided by
encourage firms to try and increase supply.
interactions between the
producers and the consumers.
 If a good is in surplus – price will tend to fall.
Falling price encourage people to buy, and
cause firms to try and cut back on supply.

 Prices help to redistribute resources from

goods with little demand to goods and services

7
8
 We explore more how equilibrium happens.
The market price is the point that Let
the us analyze
supply the chart below.intersect. (Judge, S. 2020)
anddemandcurves

The chart shows a surplus – the quantity is greater than demand. Wh

Figure 1.
The Equilibrium Point or the Market Price Point

Figure 2. Surplus Point

https://study.com/academy/lesson/characteristics-of-the-price-system-in-a-market- economy.html

PRICES ARE MARKET DRIVEN

The producers can make what they

want and consumers are free to purchase
what they want. This means that customers
live in a market economy. When prices are
high, supply increases as many firms join the
market (Judge, S. 2020).

Let’s say the units of cellular phones. The

numbers of suppliers have increased because
of high prices of the cellular phones. When
smartphones were new in the market, there
were fewer producers and prices were high. Figure 3. Shortage Point
The high prices attracted the producers
to join the market (Judge, S. 2020). In shortage, quantity is less
than the demand; it causes prices to
go up due to scarcity
https://study.com/academy/lesson/characteristics-of-the-price- Example of which is the shortage in
system-in-a-market-economy.html
https://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_dem
masks and ethyl alcohol in the market.
and.html There is shortage in the supply, thus,
price tends to go up or tends to go
higher (Judge, S. 2020).

Law of Supply and Demand

The law of supply and demand explains the interaction between the
sellers of a product and the buyers. It shows the relationship between the
availability of a particular product and the desire (or demand) for that product
has on its price.

9
 The Law of Demand
Again, what is a demand? We said last time that it is the desire
The demand
of a consumer
curve istoalways
purchase
downward
goods orsloping
servicesdue
and
If all other factors remain equal, the higher the price of a good, the fewer people will demandthat good.

“the higher the price, the lower the quantity demanded” and vice versa. (source: Investopedia)

The Law of Supply https://www.ducksters.com/money/supply_and_demand.php

The law of supply demonstrates the quantities that will

The be law
sold of
at asupply says. The
given price higher the price, the higher
……………….
The quantity supplied and vice versa. “as the price of a product increases,
companies will produce more of the
Product”.

When graphing the supply vs. the price,

the slope rises.

https://www.ducksters.com/money/supply_and_demand.php

How Do Supply and Demand Create an Equilibrium Price?

price is the price at which a producer can sell all the units he wants to produce and a buyer can buy all the uni

Supply and demand are balanced, or in equilibrium

The demand curve is downward sloping. This is due to the law of diminishing marginal utility.
The supply curve is a vertical line; overtime, supply curve slopes upward; the more suppliers expect t to ch

In the Equilibrium point, the two slopes will intersect. The market price is sufficient to induce supplier

1
 PRICE ELASTICITY OF DEMAND AND SUPPLY
Can you guess what happened with this mom in a market?
You may write your reaction in the shape towards her.

Price elasticity measures the responsiveness of the

quantity demanded or supplied of a good to a change in its
price. Elasticity can be described as: a) elastic or very
responsive and b) unit elastic, or inelastic or not very
responsive. (source: Investopedia)
Effects of Change in Demand and Supply
Elastic demand or supply curve indicates that quantity demanded or supplied respond to price changes in a gre
Inelastic demand or supply curve is one where a given percentage change in price will cause a sm
percentage change in quantity demanded or supplied.
Unitary elasticity means that a given percentage changes in price leads to an equal percentage change in qua

CATEGORIES OF PRICE ELASTICITY

According to Agarwal, P. (2018) and Judge, S. (2020), there are four categories
of price elasticity are the following:

I. The Price Elasticity of Demand

Price elasticity of demand is the responsiveness of quantity demanded, or

how much quantity demanded changes, given a change in the price of goods or
services.
*The mathematical value is negative. A negative value indicates an
inverse relationship between price and the quantity demanded. But the negative
sign is ignored (Judge, S. 2020).

Price Elasticity of Demand (PED)= % change in quantity demanded % Change

in price

1
Figure 4 Price Elasticity of Demand
 a) Elastic Demand (PED > 1) - the percentage change in price brings about
a more than proportionate change in quantity demanded.

When the percentage change in quantity demanded is greater than the

percentage change in price, and the coefficient of the elasticity is greater than 1.
Example real estate- housing - There are many different housing choices. People
may live in a townhouses, condos, apartments, or resorts. The options make easy
for people to not pay more than they demand.

b) Inelastic Demand (coefficient of the elasticity is less than 1) – is when

an increase in price causes a smaller % fall in demand.

When the percentage change in quantity demanded is less than the percentage
change in price, and the coefficient of the elasticity is less than 1.
Example Gasoline – gasoline has few alternatives; people with cars consider it as a
necessity and they need to buy gasoline. There are weak substitutes, such as train
riding, walking and buses. If the price of gasoline goes up, demand is very inelastic.
Other Examples: Diamonds, aircon, Iphone, Cigarettes

c) Unitary Elastic Demand - When the percentage change in demand is

equal to the percentage change in price, the product is said to have
Unitary Elastic demand.
Unitary elastic - PED or the price elasticity of demand is 1

d) Perfectly Elastic - a small percentage change in price brings about a

change in quantity demanded from zero to infinity.

Perfectly elastic - the coefficient of elasticity is equal to infinity (∞)

e) Perfectly Inelastic - the PED is =0 any change in price will not have
any effect on the demand of the product.

Perfectly inelastic - the percentage change in demand will be equal to zero (0)

POINT ELASTICITY
a) The midpoint elasticity is less than 1. (Ed < 1). Price reduction leads
to reduction in the total revenue of the firm.
b) The demand curve is linear (straight line), it has a unitary elasticity at
the midpoint. The total revenue is maximum at this point.
c) Any point above the midpoint has elasticity greater than 1, (Ed > 1).

II. The Income Elasticity of Demand (YED)

The income elasticity of demand is the relationship between changes in
quantity demanded for a good and a change in real income.

1
 • YED = % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑑𝑒𝑚𝑎𝑛𝑑 % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜𝑚𝑒
Normal Goods – are those goods for which the demand rises as consumer income
rises; positive income elasticity of demand so as consumers’ income rises more is
demanded at each price. These goods shift to the right as income rises.

YED is positive. As income rises, the proportion spent on cheap goods will reduce
as now they can afford to buy more expensive goods.

Example (the demand for units of air-conditioning increases as the income of the
consumer increases and the demand for electric fan decreases)

Normal good: units of air-conditioning; Inferior good: electric fan

The Inferior Goods – the demand decreases when consumer income rises; demand
increases when consumer income decreases)

---------- Shifts to the left as income rises. YED is negative. • As income rises, the
proportion spent on cheap goods will reduce as now they can afford to buy more
expensive goods. Examples: the demand for cheap/generic electronic goods
(let say electric fans) will fall as people income rises and they will switch to
expensive branded electronic goods (unit of air-conditioning)

III. Cross Price Elasticity of Demand or (XED)

Cross price elasticity of dmand is he effect on the change in demand of one

good as a result of a change in price of related to another product.
• XED = % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑋 % 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑌 • • If
the value of XED is positive - substitute goods
• If the value of XED is negative – complements goods
• If the value of XED is zero - two goods are unrelated

IV. Price Elasticity of Supply (PES)

• The measure of the responsiveness of quantity to a change in price. It is
the percentage change in supply as compared to the percentage change in price of
a commodity. PES = % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑆𝑢𝑝𝑝𝑙𝑖𝑒𝑑 % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒

If supply is elastic, producers can increase

output without a rise in cost or a time
delay. If supply is inelastic, firms find it
hard to change production in a given time
period. https://www.intelligenteconomist.com/price-elasticity-
of-supply

PES = % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑆𝑢𝑝𝑝𝑙𝑖𝑒𝑑 % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒

If Pes > 1 = supply is price elastic
Pes = 0 = supply is perfectly inelastic
Pes = infinity = supply is perfectly elastic
Pes < 1 = supply is price inelastic

1
 PRICE ELASTICITY OF SUPPLY

ELASTIC SUPPLY INELASTIC SUPPLY

PERFECTLY INELASTIC SUPPLY PERFECTLY INELASTIC SUPPLY

https://www.intelligenteconomist.com/price-elasticity-of-supply

Determinants of Price Elasticity of Supply

Agarwal, P. (2020) said, price elasticity of supply can be influenced by the
following factors:

1. Marginal Cost- If the cost of producing one more unit keeps rising as output
rises or marginal cost rises rapidly with an increase in output, the rate of output
production will be limited. The Price Elasticity of Supply will be inelastic - the
percentage of quantity supplied changes less than the change in price. If Marginal
Cost rises slowly, supply will be elastic.

2. Time - Over time price elasticity of supply tends to become more elastic. The
producers would increase the quantity supplied by a larger percentage than an
increase in price.

3. Number of Firms - The larger the number of firms, the more likely the supply is
elastic. The firms can jump in to fill in the void in supply.

4. Mobility of Factors of Production- If factors of production are movable, the

price elasticity of supply tends to be more elastic. The labor and other inputs can
be brought in from other location to increase the capacity quickly.

5. Capacity - If firms have spare capacity, the price elasticity of supply is elastic.
The firm can increase output without experiencing an increase in costs, and
quickly with a change in price.

1
 ACTIVITIES

Part I. Problem Solving and Critical Thinking Analysis

Directions: Please analyse the problems carefully. Answer the problems and
present your solutions. Inerpret the results.

1) If there are 10 bottles of water and there are 20 students who want to
drink these bottles of water, there will be only 10 students whose
demands are met while the others will not.

Analysis: We can conclude that there is in the

supply.

2. If price of canned good in the grocery store increases by 8% and the

quantity demanded decreases by 12%, what is price elasticity of
demand? Is it elastic, inelastic or unitary elastic?

Solution:

Interpretation: This means it is

3. If a 4% increase in price of 1 pack of bread leads to an increase in the

quantity supplied of 8% describe the price elasticity.

Solution:

Analysis of Price elasticity:

Part II. Solving Problem on Price Elasticity

Directions: Analyze each problem carefully. Answer the questions below.

1. Suppose the price of ethyl alcohol rises by 20 %. As a result, the demand

for substitute hand soap rises by 10 %.

A) What is the cross-elasticity of demand for hand soap with respect to

the price of ethyl alcohol? Encircle your answer. Present your solution.

A) + 2 B) + 0.5 C) - 0.5 D) – 2

14
 Learning Module for Applied Economics
B) Analysis on price elasticity

C) Interpret your analysis on the kind of good

2. If a 20% decrease in the price of international calls lead to a 35% increase

in the quantity of calls demanded, we can conclude that the demand for
phone calls is:

A) Solution:

B) Analysis on price elasticity

REMEMBER

 A demand curve shows the relationship between quantity demanded and

price in a given market on a graph.
 The law of demand states that a higher price typically leads to a lower
quantity demanded.
 A supply curve shows the relationship between quantity supplied and price
on a graph.
 The law of supply says that a higher price typically leads to a higher
quantity supplied.
 The equilibrium price and equilibrium quantity occur where the supply and
demand curves cross.
 The equilibrium occurs where the quantity demanded is equal to the
quantity supplied.
 If the price is below the equilibrium level, then the quantity demanded will
exceed the quantity supplied.
 Excess demand or a shortage will exist. If the price is above the equilibrium
level, then the quantity supplied will exceed the quantity demanded.
 Excess supply or a surplus will exist. In either case, economic pressures
will push the price toward the equilibrium level.

1
 Learning Module for Applied Economics

CHECK YOUR UNDERSTANDING

Part I. Identification

Directions: Please read the sentences carefully. Identify the the word or phrase
that is appropriate to each item.

1. A shows the relationship between quantity demanded and

price in a given market on a graph.
2. The states that, higher the price, the higher
the quantity supplied.
3. means that a given percentage changes in price leads to
an equal percentage change in quantity demanded or supplied.
4. means the effect on the change in demand of one good as
a result of a change in price of related to another product.

5. those goods for which the demand rises as consumer

income rises.
6. the coefficient of the elasticity is less than 1; when an
increase in price causes a smaller % fall in demand.

Part II. Enumeration on Price Elasticity of Goods

Directions: Please conduct a survey or observe the market in your vicinity. This
can make you aware of your environments. Give examples of goods considered
as elastic and inelastic. You may work with your parents and siblings.

ELASTIC GOODS INELASTIC GOODS

1 1
2 2
3 3
4 4
5 5

1
 Learning Module for Applied Economics

POST-TEST

Name Year/Section_ Date

Teacher School _

Part I True or False

Directions: Read the sentences carefully. Write TRUE if the statement is correct
and FALSE if the statement is incorrect.

1. Elasticity of demand refers to the change in demand when there is a

change in another factor such as price or income

2. If demand for a good or service is static even when the price changes,
demand is said to be inelastic

3. Examples of elastic goods include gasoline, while inelastic goods are

items like canned goods and vitamin c tablets

4. The law of demand states that “elasticity shows how much a good or
service is demanded relative to its movement in price”.

5. Inelastic demand is when a demanded quantity for masks changes

by a greater percentage compared to its percentage change in price

6. The opposite of a market economy is a planned economy, where

investment and production decisions are decided by the government.

7. Unit elastic is when a percentage change in demand equals the

price.
8. A mango fruit with an elastic demand gets more sales when its
price drops slightly. When its price goes up, it stays longer in the box.

9. The demand curve shows how quantity demanded for apple

responds to price changes. The flatter the curve, the more elastic is the
demand for an apple.

10. The midpoint elasticity is greater than 1.

1
 Learning Module for Applied Economics

REFLECTIVE LEARNING SHEET

HOW DO YOU RESPOND TO PRICE ELASTICITY?

www.catholicmom.com

People have unlimited needs and wants for their personal satisfaction and
because of that the prices of products easily get changed.
Everyone is affected with the new normal in the market. The prices of
products have become very expensive since the outbreak of the pandemic, not
only in our locality, but in the whole world.

If your income or the income of your family is not enough to purchase the
basic commodities needed by your family, what goods would you buy, instead?
What economic or marketing strategies would you apply? How would you respond
to the price changes of these commodities?

E-SITES

To further explore the concept learned today, and if it possible to connect the internet,
you may visit the following links:
https://www.youtube.com/watch?v=HHcblIxiAAk; https://www.youtube.com/watch?
v=nOlOf_KEnrw

1
 Learning Module for Applied Economics
REFERENCES

Articles:
Agarwal, P. (2018) Price Elasticity of Supply. Retrieved on June 04 2020 from
https://www.intelligenteconomist.com/price-elasticity-of-supply

Amadeo, K. (2020) Elastic Demand with Its Formula, Curve, and Examples Retrieved on June 04 2020
from https://www.thebalance.com/elastic-demand-definition-formula-curve-examples-3305836;
https://www.thebalance.com/inelastic-demand-definition-formula-curve-examples-3305935

Judge, S. (2020) Characteristics of the Price System in a Market Economy. Retrieved on June 04 2020
from https://study.com/academy/lesson/characteristics-of-the-price-system-in-a-market-economy.html

Pettinger, T. (2019) Role and Function of Price in Economy Retrieved on June 04 2020 from
https://www.economicshelp.org/blog/1170/economics/role-and-function-of-price-in-economy/

Websites
https://www.slideshare.net/kalaiyarasidanabalan/a-level-economics-chapter-2-core
https://www.investopedia.com/ask/answers/012915/what-difference-between-inelasticity-and-elasticity
demand.asp
https://www.sparknotes.com/economics/micro/elasticity/problems
https://www.investopedia.com/terms/l/law-of-supply-demand.asp
https://opentextbc.ca/principlesofeconomics/chapter/3-1-demand-supply-and-equilibrium-in-markets-
for-goods-and-services/ https://global.oup.com/us/companion.websites/9780199811786/student/
chapt2/multiplech https://opentextbc.ca/principlesofeconomics/chapter/5-1-price-elasticity-of-demand-
and-price- elasticity-of-supply
http://faculty.fortlewis.edu/walker_d/practice_problems_-_elasticity.htm
https://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_demand.html
https://redmontecon https://global.oup.com/uk/orc/busecon/economics/gillespie_econ4e/student/
mcqs/ch05/ https://study.com/academy/answer/if-a-20-decrease-in-the-price-of-long-distance-
phone-calls-leads; https://int.search.myway.com/search/AJimage.jhtml

Acknowledgment
Ellaine I. Dela Cruz, DBA Isabel A. Gumaru, DBA
Writers:

Evaluator: Ellaine I. Dela Cruz

Editor:Isabel A. Gumaru
Reviewers:Remylinda T. Soriano, EPS
Angelita Z. Modesto, PSDS George B. Borromeo, PSDS

Management Team:
NameMaria Magdalena M. LimYea, Scr/hSooeclstiDoinvision SuperintendDeantte-Manila

Aida H. Rondilla, Chief Education Supervisor

Teacher Lucky S. Carpio, EPS ISncChhoaorlge of LRMDS
Lady Hannah C. Gillo, Librarian II-LRMDS

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 Learning Module for Applied Economics

Name: Year/Section Date Score

WORKSHEET (ADDITIONAL ACTIVITY)

Problem Solving and Critical Thinking Analysis

Directions: Solve the following problems. Interpret the results.

1. Christine sells banana banana turon for Php 4.00 per piece. She sells 50
pcs, and decides that she can charge more. She raises the price to
Php6.00 per piece and sells 40 pieces. What is the elasticity of demand for
her banana turon?

a) Solution:

b) Interpret the result of the demand elasticity: _

2. Joy Lima manages a Sweet Chocolate Bar Store. She charges P100 per
bar for her chocolate. You, the economist, have calculated the elasticity of
demand for the chocolate in her town to be 2.5. a) If she wants to increase
her total income or revenue, what advice will you give her and why?
b) What economic principle apllies? Explain your answer.

http://faculty.fortlewis.edu/walker_d/practice_problems_-_elasticity.htm

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 Learning Module for Applied Economics
ANSWER KEY

PRETEST:

Part I. Graph Analysis

1) Quantity supplied is greater than quantity demanded
2) Quantity demanded is greater than quantity supplied
3) a) Above the equilibrium point
b) Below the equilibrium point
c) The surplus and shortage points meet or intersect
4) Oversupply/surplus – the quantity supplied is greater than the quantity demanded
Shortage/scarcity - the quantity supplied is less than quantity demanded
Equilibrium - the point where the demand and supply curves intersect.

Part II Multiple Choice

1) A 3) C 5) C
2) B 4) B

LOOKING BACK TO YOUR LESSON:

TRUE or FALSE
1. TRUE 5. FALSE
2. TRUE 6. TRUE 9. TRUE
3. FALSE 7. TRUE 10. FALSE
4. TRUE 8. TRUE

Part II Make meaning internet assisted activity

Price Elasticity – responsiveness of the market place to a change in price for a product
Price Elasticity of Demand – economic measure of the change in the quantity demanded or
purchased of product in relation to price changes
Price Elasticity of Supply- measures the responsiveness to the supply of goods or services after
a change in its market price (source: investopedia)

ACTIVITIES:
Part I
1. Scarcity in the supply of bottled water

2. Solution: -12%/8% = -.12/.08 =

Answer -1.5.
Again, drop the negative sign, so the elasticity is 1.5.
Interpretation: Elastic (greater than 1)
3. First compute the price elasticity of demand, which is the percentage change in
quantity demanded divided by the percentage change in price
Solution: price elasticity = 35%/ (-20%)
Answer: price elasticity = -175

Interpretation: The price elasticity is larger than one in absolute value, demand
is elastic.

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 Learning Module for Applied Economics
Part II
1. XED = % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑋 % 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑌 •
If the value of XED is positive - substitute goods

a) 20/10= 2
b) Positive
c) It’s a substitute good

2. First compute the price elasticity of demand, which is the percentage change
in quantity demanded divided by the percentage change in price
a) Solution: price elasticity = 35%/ (-20%)
Again, drop the negative sign
b) Answer: price elasticity = -1.75
c) Interpretation: Since the price elasticity is larger than one in absolute value,
demand is elastic.
CHECK YOUR UNDERSTANDING
1. Demand Curve
2. The Law of Supply 4. Cross Price Elasticity of Demand
3. Unitary Elasticity 5. Normal Goods
Part II. Price Elasticity of Goods 6. Inelastic Demand
Elatic Goods
InElastic Goods
POST TEST
Part I. TRUE OR FALSE

1. TRUE 5 FALSE 9 TRUE

2 TRUE 6 TRUE 10 FALSE
3 FALSE 7 TRUE
4 TRUE 8 TRUE
WORKSHEET
1. To find the elasticity of demand, we need to divide the percentage change in
quantity by the percentage change in price.
a) Solution
% Change in Quantity = (40 - 50)/(50) = -0.20 = -20%
% Change in Price = (6.00 - 4.00)/(4.00) = 0.50 = 50%
Elasticity = |(-20%)/(50%)| = |-0.4| = 0.4
Answer: The elasticity of demand is 0.4
b) Elastic
2. She should lower her price. Her price elasticity of demand for chocolate is
elastic (greater than one) and therefore, when she lowers her price she will sell a lot
more chocolate. The greater quantity sold will make up for her lower price,
increasing her total revenue. In other words, she is selling at a lower price but
making up for it in volume of sales.
http://faculty.fortlewis.edu/walker_d/practice_problems_-_elasticity.htm