LESSON

3
Market Demand, Market Supply, and
Market Equilibrium
EXPECTATIONS

You will represent real-life situations using the market demand, market
supply and market equilibrium. Specifically, this module will help you to:

1. determine the concepts of market demand, supply and equilibrium

2. state the laws of demand and supply
3. construct and analyze demand, supply and their curves
4. solve problems on demand, supply and equilibrium
Let us start your jo urney in
learning more on market demand,
PRE -TEST supply and equilibrium Are you excited
to answer the Pretest. Smile and Enjoy!

Before you equip yourself with a new set of knowledge, let us

check your understanding about the topic. Enjoy answering!

PART I. GRAPH ANALYSIS

Directions: Please analyze the graph and answer the questions below.

a) Locate the equilibrium point on the demand

and supply graph. Put a point on the graph
b) If the price is above the equilibrium level, what
could you predict with the demand and
supply?______________________
c) If below the equilibrium point what could you
predict with the demand and
supply?__________________________ PART
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II. FILL IN THE BLANKS

Directions: Analyze the following statements carefulyy. Fill in the blanks.

1. The law of ______________________________ applies during online sales of shoes;
that is when consumers rush to buy products at 50% discounts.

2. The law of _______________________ applies when the producers supply more

pineapple juices at a higher price; selling at higher quantity at a higher price
increases revenue.

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

LOOKING BACK TO YOUR LESSON

Last module, we discussed the issues on the factors of production and how these
affect the economy, the basic problems facing the local and global economics,
and the roles of economics in solving these problems.

Identification. Identify the following problems that may exist in the local and
global economies during production of goods and services. Choose from the
factors below. Just write the letter.

Questions: If the economic problem is focused on

1. ____ the legalities of the production

2. ____ the nature of goods to produce
3. ____ the allocation of the products among members of the society
4. ____ the method of production of products

A. Whom to produce C. What provision to implement

B. What to produce D. What method or strategy is

effective and efficient

BRIEF INTRODUCTION

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 Economics helps us solve the problem on excess supply and excess
demand, and lead it to a balanced supply and demand. In our needs, we do not
want oversupply. It means wastage of income. For entrepreneurs, it is not
efficient if their stocks or supplies are greater than the actual demand. It is a
loss not revenue.

In economics, there are terms that you must learn to understand the
better market situations. A demand or the amount of good or service consumers
are willing to purchase at each price. If customers cannot pay for it, there is no
effective demand. Price is what a buyer pays for a unit of the specific good or
service. The total number of units purchased at that price is called the quantity
demanded.

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.
The Law of Demand
If all other factors remain equal, the higher
the price of a good, the fewer people will
demand that good. For example, if the price of video
game drops, the demand for
“the higher the price, the lower games may increase as more
the quantity demanded” and vice people want the games.
versa.

The amount of a good Factors Affecting Demand

that buyers purchase a) income of buyers
at a higher price is b) number of potential buyers
fewer because as the
c) preferences
price of good goes up,
d) complementary products
the opportunity cost
of buying the good
also is less. The demand curve is always
Consumers will avoid downward sloping due to the law
buying a product. of diminishing marginal utility.

The Law of Supply

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The law of supply demonstrates the
quantities that will be sold at a given Factors Affecting Supply a)
price. Production capacity,
The higher the price, the higher b) production costs such as
The quantity supplied and vice labor and materials
versa. c) the number of competitors
Producers supply more at a d) Ancillary factors such as
higher price because selling at higher e) material availability,
quantity at a higher pric increases f) weather, and
revenue. g) reliability of supply chains

The law of supply says ……………….

―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?

Equilibrium price or market-clearing price. is the price

at which the producer can sell all the units he wants to
produce and the buyer can buy all the units he wants.
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 to be able to charge, the more they will be willing to produce and
bring to market.

In the Equilibrium point, the two slopes will intersect. The market price is
sufficient to induce suppliers to bring to market that same quantity of goods that
consumers will be willing to pay for at that price.
https://www.investopedia.com/terms/l/law-of-supply-demand.asp https://www.thoughtco.com/calculating-economic-equilibrium-
1147698 https://www.ducksters.com/money/supply_and_demand.php

4
 ACTIVITIES

Activity No. 1 “Think, Learn and Challenge Opportunity”

Directions: Let’s analyse this passage. This will help you understand our new
topic on demand, supply and equilibrium. Please read carefully the passage
and answer the question below.

Supply, Demand and Marriage

By Robert H. Frank

In some cultures, romance isn’t nearly as important as cash when it comes to

choosing a marriage partner. And even when money plays no explicit role in
selecting a mate, courtship customs are governed by the venerable economic
model of supply and demand. Under the dowry system in India, for example,
parents of older brides would typically pay more to prospective grooms. Men
with better jobs would receive larger payments, too. In short, there really is a
marriage market in many countries around the world, and economic
principles apply to it. In markets with a preponderance of women seeking
partners, the terms of trade shift in favor of men. If more men are seeking
partners, the reverse is true.
https://www.nytimes.com/2011/08/07/business/economy/marriage-and-the-law-of-supply-anddemand.html

1. Under the dowry system in India, a market with more women seeking
partners, the trade shift favors the men. What law or economic principle is
applicable?
______________________________________________________________________.
_______________________________________________________________________
2. In the same system, men with better jobs receive larger payments. What
economic principle is applicable to this situation? Justify your
answer.________________________________________________________________
_______________________________________________________________________

3. State the law of demand.

______________________________________________________________________
______________________________________________________________________

4. State the law of supply.

______________________________________________________________________
______________________________________________________________________
Activity 2. The Law of Demand and Supply

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Directions: Analyse this problem. The following data were taken from an invoice
of Company X. The company imports gasoline from other country.

2.1) Plot or graph the data. Interpret the results.

Price Quantity Demanded
($ per gallon) (millions of gallons)
1.00 800
1.20 700
1.40 600
1.60 550
1.80 500
2.00 460
2.20 420

Table 1. Price and Quantity Demanded of Gasoline

Price

Qd
Figure 1. Price and Quantity Demanded of Gasoline
Legend: P – Price; D- Demand; Qd –Quantity Demanded

2.2 Analyze data and describe the curve.

_____________________________________________________________________________
_____________________________________________________________________________
______________________________________________________________________.

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Activity 3. Problem Solving

Directions: Analyze the problem. The following are sets of data taken from the
invoice of Company X. The company imports gasoline from other country.

3.1) Plot or graph the data.

Price ($ Supply of Gasoline

per gallon) (millions of gallons)

1.00 500 1.20 550 1.40 600

1.60 640 1.80 680 2.00 700
2.20 720
Table 2. Price and Supply of Gasoline

Qd

Figure 1. Table 2. Price and Supply of Gasoline

Legend: P – Price; S- Supply; Qd –Quantity Demanded
3. 2 Analyze data and describe the curve. Interpret the results.
__________________________________________________________________________
__________________________________________________________________________
_________________________________________________________________________.

3.3) Using the data from demand and supply,

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 a) Determine the equilibrium point of the demand and supply curves.

Qd

Figure 3. The Equilibrium Price

b) How much is the price in the equilibrium point? Present your solution here.

Solution:

Answer:

Sources: https://opentextbc.ca/principlesofeconomics/chapter/3-1-demand-supply-and-equilibrium-in-markets- for-

goods-and-services/

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 REMEMBER
What Provison

• 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.

CHECK YOUR UNDERSTANDING

Let us check your understanding on the topic. Have fun!

Fill in the Blanks.

Directions: Read the sentences and fill in the blanks.
1. The ______________________________________ explain the interaction
between the sellers of a resource and the buyers for that resource.
2. The __________________________ states that, higher the price, the higher
the quantity supplied.
3. A movement refers to a change along a _________________.
4. A shift in a demand or supply curve occurs when a good's quantity
demanded or supplied changes even though price remains
__________________________.
5. When Supply and demand are balanced, it is called ____________________.
6. The _______________________________________states that ―the higher the
price, the lower the quantity demanded‖.

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 POST -TEST

PART I True or False

Directions: Write TRUE if the statement is correct and FALSE if incorrect. Write
your answer before the number.

________1.The upward slope of the supply curve illustrates the law of demand—
―higher price leads to a higher quantity supplied, and vice versa‖.
________2.The downward slope of the demand curve illustrates the law of
supply—the inverse relationship between prices and quantity demanded.
________3.Time is important to supply because suppliers must react quickly to a
change in demand or price.
________4.A shift in a demand or supply curve occurs when quantity demanded
or supplied changes even though price remains the same.
________5.The law of supply says that ―at higher prices, sellers will supply more
of economic goods‖.

PART II Multiple Choice Questions

Directions: Read the sentences carefully. Encircle the correct answer.

6. An increase in the price of electricity bill will force you to:

a. increase your demand for kerosene heaters and coal.
b. increase your demand for light bulbs and aircon.
c. increase your demand for stereos and videokes.
d. increase your demand for TVs and use of gadgets.

7. The market demand curve for apple shows the

a. effect on market supply of a change in the demand for apple
b. quantity of an apple that consumers like to buy at different prices.
c. marginal cost of producing and selling different quantities of an apple.
d. effect of advertising expenditures on the market price of an apple.

8. Economies experience an increased in unemployment and a reduced of activity

during recession. How does recession affect the market demand for new cars?
a. Demand for new cars shifts to the right.
b. Demand for new cars shifts to the left.
c. Demand for new cars has no shift
d. Demand for new cars either has or no shift
9. The market supply curve for gasoline shows the
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a. effect on market demand of a change in the supply of gasoline.
b. quantity of gasoline that firms offer for sale at different prices.
c. quantity of gasoline that consumers are willing to buy at different prices.
d. All of the above are correct.

10. If Toyota firm is producing a car faster than people want to buy, there is
a. an excess supply of car and price can be expected to decrease.
b. an excess supply of car and price can be expected to increase.
c. an excess demand of car and price can be expected to decrease.
d. an excess demand and price can be expected to increase.

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

PART III. Solving Problem and Critical Thinking Analysis

Directions: Analyze the problem carefully. In December, the price of ―hamon‖

rises and the number of ―hamon‖ sold also rises. Is this a violation of the law
of demand? Justify your answer.

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 REFLECTIVE LEARNING SHEET

Our case today can be

compared to our topic. Let us
understand that everything has
limitations in our consumption –our
basic needs like food, shelter and
water. Even our consumption on the
mode of transportation has
limitation.
The challenge to us,
consumers, is how we make use of
our imitative , and utilize our income
to satisfy our demands at the most
affordable prices;
for the sellers to supply the
needs of the consumers while
making profit; for the government to
legislate the economy while helping
all the agents and to protect the
monetary and fiscal transactions.
As a consumer, how can you
sustain your needs (basic
commodities) despite the challenges
in increased price of these items in
the market?

www.kahanasunset.com
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
______________________________________________________ _____________________
___________________________________________________________________________
_______________________________________________________________________.

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