THE IMPLICATIONS OF MARKET PRICING

ON ECONOMIC DECISION - MAKING

NOVEMBER 7, 2022 | SAN JOSE HIGH SCHOOL

LYNDON B. PAGUNTALAN
REVIEW:
1. When the quantity consumers are willing and able to buy equals the quantity
that producers are willing and able to sell.
A. Surplus C. Shortage
B. Market Equilibrium D. None of these.

2. At a given price, the amount by which quantity supplied exceeds quantity

demanded; it usually forces the price down.
A. Surplus C. Shortage
B. Market Equilibrium D. None of these.

DEPARTMENT OF EDUCATION
3. At a given price, the amount by which quantity demanded exceeds quantity
supplied; it usually forces the price up.
A. Surplus C. Shortage
B. Market Equilibrium D. None of these.

4. A person who sells a merchandise or renders a service.

A. Buyer C. Laborer
B. Capitalist D. Seller

5. A person who purchases a merchandise or acquiring a service.

A. Buyer C. Laborer
B. Capitalist D. Seller

DEPARTMENT OF EDUCATION
 MARKET EQUILIBRIUM
- the quantity that consumers are willing and able to buy matches the quantity
that producers are willing and able to sell.
- buyers and sellers’ separate plans are perfectly aligned, and there is no reason
to alter.
- market forces impose no more pressure on price or quantity to change.

DEPARTMENT OF EDUCATION
 SURPLUS FORCES THE PRICE DOWN
Consider the demand and supply for the market for pizza as example.
What if the price is initially set at ₱120? At that price, producers supply
24 million pizzas per week, but consumers demand only 14 million,
resulting in an excess quantity supplied, or a surplus of 10 million
pizzas per week. This surplus means that suppliers are stuck with 10
million pizzas they cannot sell at ₱120.

DEPARTMENT OF EDUCATION
 Suppliers’ desire to eliminate the surplus puts downward
pressure on the price.

 Producers reduce the quantity supplied as the price

declines, while customers increase the quantity demanded.

 As long as the quantity supplied exceeds the quantity

demanded, the surplus forces the price to lower.

DEPARTMENT OF EDUCATION
Market equilibrium occurs at the price at which the quantity
demanded by consumers is equal to the quantity supplied by
producers.
Qsupplied = Qdemanded

At prices above the equilibrium price, the quantity supplied

exceeds the quantity demanded. At these prices, there is a
surplus.
Qsupplied > Qdemanded
DEPARTMENT OF EDUCATION
Table 1 shows the Pizzas per week (in millions) vs Price per Pizza (in pesos).

DEPARTMENT OF EDUCATION
 SHORTAGE FORCES THE PRICE UP
What if the initial price of pizza is ₱60? At this price, consumers
demand 26 million pizzas per week, but producers supply only 16
million. This results in a shortage of 10 million pizzas per week.
Consumers compete to buy the product, which is in short supply.
Market pressure for a higher price is created by buyer competition.

DEPARTMENT OF EDUCATION
 Producers increase the quantity supplied as the price rises, while
customers reduce the quantity demanded.

 As long as the quantity demanded exceeds the quantity supplied, the

price will continue to climb.

At prices below the equilibrium price, the quantity demanded

exceeds the quantity demanded. At these prices, there is a surplus.
Qdemanded > Qsupplied

DEPARTMENT OF EDUCATION
Table 1 shows the Pizzas per week (in millions) vs Price per Pizza (in pesos).

DEPARTMENT OF EDUCATION
 MARKET FORCES LEAD TO EQUILIBRIUM PRICE
AND QUANTITY

Equilibrium price is also called the market-clearing price

because there is no shortage and no surplus.

There is no longer pressure for the price to change. The

equilibrium price remains at ₱90 unless there is some change
that shifts the demand or supply curve.

DEPARTMENT OF EDUCATION
The price of goods plays a crucial role in determining an efficient
distribution of resources in a market system.

 Price acts as a signal for shortages and surpluses which help firms
and consumers respond to changing market conditions.

 If a good is in shortage – price will tend to rise. Rising prices

discourage demand, and encourage firms to try and increase supply.

DEPARTMENT OF EDUCATION
 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 which people value more.

DEPARTMENT OF EDUCATION
 ROLE OF PRICES
 serve as a signal to buyers and sellers about the relative scarcity of
the good.
 higher price encourages consumers to find substitutes for good or
even go without it
 higher price also encourages producers to allocate more resources
to the production of this good.
 prices help people recognize market opportunities to make better
choices as consumers as producers.

DEPARTMENT OF EDUCATION
 FACTORS THAT IMPACT MARKET PRICE
Although the principle of market price ultimately depends on supply
and demand, there are a number of factors that can also affect market
price.
 Natural disasters
 World events
 Amount of wages paid to workers
 Decrease or increase in employment
 Pricing of luxury items versus necessities

DEPARTMENT OF EDUCATION
 HOW PRICE AFFECTS CONSUMER BEHAVIOR?

 Consumers look for substitutes or other goods that can replace in the
long run. Therefore, over time, demand falls.
 Over time, people may start recycling or alternative ways to reduce
the usage.
 Responding to these changing consumer preferences, firms will
develop other products- enabling more alternatives leads to less
demand in long-term.

DEPARTMENT OF EDUCATION
Performance Task 1: Think Critically: Answer the following questions.

1. How would Ms. Dedales, owner of a dress shop, react if she found she had 30 extra
prom dresses that she could not sell at the current market price?
2. How would the owners of a nursery react if hundreds of customers wanted to buy
cactus plants at the current price of P150 when the nursery has 25 plants to sell?
3. What is reasonable to conclude about the quantity of a product that is demanded and
the quantity that is supplied if the price of the product does not change over many
months?

DEPARTMENT OF EDUCATION
 Level of
General Approach Comprehension
Achievement
• Demonstrates an accurate and complete
• Addresses the questions. understanding of the questions.
Exemplary
• States a relevant, justifiable answer. • Backs conclusions with data and warrants.
(5 pts)
• Presents arguments in a logical • Uses 2 or more ideas, examples and/or
order. arguments that support the answer.

• Does not address the questions

explicitly, although does so • Demonstrates accurate but only adequate
tangentially. understanding of questions because does not
Adequate
• States a relevant and justifiable back conclusions with warrants and data.
(3 pts)
answer. • Uses only one idea to support the answer.
• Presents arguments in a logical • Less thorough than above.
order.

DEPARTMENT OF EDUCATION
 Level of
General Approach Comprehension
Achievement
• Does not address the questions. • Does not demonstrate accurate understanding
Needs
• States no relevant answers. of the questions.
Improvement
• Indicates misconceptions. • Does not provide evidence to support their
(1 pt)
• Is not clearly or logically answer to the questions.
organized.

No answer (0 pts)

DEPARTMENT OF EDUCATION