APPLIED ECONOMICS

ABM 12 – ST. TERESA OF CALCUTTA

S.Y. 2024 – 2025

MARKET DEMAND AND SUPPLY

MELC: Analyze market demand, market supply and market equilibrium

OBJECTIVE:
 Describe the demand curve
 Describe the supply curve
__________________________________________________________________________________________________

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.
In this module, it refers to the place where the sellers can sell their products to their
buyers/customers usually in exchange for money.

Market is made up of buyers and

sellers making choices under
conditions of scarcity. They attempt to
buy and sell on the best terms
possible. It enables buyers and
sellers to interact, get information and
engage in exchange.

There are two major actors in the market.

a. CONSUMER OR BUYER
- his primary objective is to purchase a commodity because it can give him/her benefit.
He ask about the types of goods and services available and the prices they must pay
for them.
b. SUPPLIER OR SELLER
- his primary purpose in selling is to maximize profit. He inquire about the types of goods
and services buyers want and the price they are willing to pay.
The interaction among buyers and sellers determine how much can be bought and sold and at
what price.
PRICE, therefore is the indicator of marginal benefits to the buyers and marginal cost to
the [Link] in the market economy are agreed on by the buyer and the seller after
bargaining.

It is the PRICE that determine whether you are going to buy a certain product you
want or not. On the other hand, Price also determine how much products the seller is
willing to sell. Price is a reflection of supply and demand.

What is Demand? What is 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.
Demand refers to how much(quantity)of a product or service is desired by buyers or
consumers. The quantity demanded is the amount of the product people are willing to buy at a
certain price.
A demand curve is a schedule of the willingness and capacity of consumer to buy a
commodity at alternative prices at a given point in time other things held constant.
Remember that in the construction of the demand curve it is important to consider
not only the willingness to buy but also the capacity to buy. Everyone wants or willing to buy a
good but not all is able to buy because some do not have the capacity to buy the good.
The demand curve is derived from the demand for a commodity since it only reflects the
relationship between the quantity demand and the price of a commodity.
When we say other things held constant or ceteris paribus, the other factors that may affect the
demand for the commodity are not changing. The only factor that influences the level of demand
or consumption is the price of the commodity itself.
Study the graph below.
The graph shows the indirect relationship between
price of the commodity and the quantity bought in a
demand curve. At the horizontal axis, we put the
quantity demanded, and on the vertical axis, the
price of the commodity. Along the demand curve D,
at price P1 the quantity demand is denoted by Q1. If
the price is increased to P2, the quantity demand is
reduced to Q2. Thus, negatively sloped demand
curve D implies an indirect relationship between
price of the commodity and quantity demand. This
What is stated in the Law of Demand? indirect relationship is explained in the Law of

In the Law of Demand,

it states that as price
increases, quantity
demanded decreases,
and as price decreases,
quantity demanded

The law of demand tells us what would happen to the quantity of a good that people
would choose to buy if only the price of that good changed and all the other factors affecting
demand for that good remained unchanged.
The observed inverse relationship between price and quantity demanded can be shown using a
table or a graph.
Demand Schedule is a table that shows the quantity demanded of a good or service at a
different price level. A demand schedule can be graph as a continuous demand curve on a chart
where the Y axis represents price and the X axis represents quantity.
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 6 kilos.
The table below is an example of Demand Schedule where you can see the comparison of
changes in quantity demanded and changes in demand.
Table 1. Demand Schedule of Chicken per month
Without ASF
Price Quantity
/Kilogram Demanded/kg
120 10
130 8
140 6
From this Demand Schedule, we can make a graph presenting a demand curve for chicken.
Figure 1

Figure 1 shows the graphical representation of the demand

schedule (Table 1). It is negative slope showing that the
price and quantity demanded are inversely related. The
demand schedule and the demand curve 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.

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
There are kinds of useful things to produce and sell but they are not always produced
and sold. Why not? What determines the choices of those who supply good and services? The price they
can charge for their product and the costs they would incur in producing and selling their product govern
the choices made by those who supply goods and services. Things are not produced and sold unless it is
profitable and technologically feasible to do so.
Supply refers to the relationship between the price of a good or service and the quantity or number of
units all sellers in the market would choose to sell during a given time period.
Quantity supplied therefore refers to a given quantity of a good or service seller would choose to
buy at a particular price.
What is a Supply Curve?
Supply curve is defined as a schedule showing a direct or positive relationship between the price
of a commodity and level of output that the seller is willing to supply at a given point in time other things
held constant.
This direct relationship means that as the price of the commodity increases there will be more sellers that
will be induced to supply the good. In the same light, as the price decreases, there will be lesser sellers
that are willing to supply the good in the market.

The graph shows a direct relationship between the

price of the commodity and the quantity supplied
in the supply curve S. Along this supply curve, at
the initial price of P1, quantity supplied is given by
Q1, as the price of the commodity increase to P2,
quantity supplied is increased to Q2. Thus, the
supply curve shows a positive relationship between
the price of the commodity and the amount
The direct relationship between the price and the quantity supplied is stared in the Law of Supply.

Law of Supply
-states that as price Quantity of
PRICE
a commodity Supply
Quantity GOES
increases, the PRICE GOES
Supply DOWN
quantity supply also GOES DOWN
increases; and as goes
UP
price decreases, the Up
quantity supply also
decreases.

Law of Supply tells us what would happen to the quantity of a good that sellers would choose to sell if only
the price of that good changed and all the other factors affecting supply for that good remained
unchanged.
Why are price and quantity supplied regularly observed to be positively related?
It is because as the quantity produced for any good increases, the marginal cost (the cost of producing
each additional unit of the good) would eventually increase.
For example: For furniture : if the price of wood per board feet increases, the price of the finish
product also increases because of the increase in the raw material.
Another example is when the price of surgical facemask per box increases this time of pandemic
crisis due to CoVID 19, producers are willing to produce more. A higher price increases the quantity
supplied and a lower price decreases the quantity supplied.
(Sa madaling salita, PRESYO ang basehan ng pagtaas o pagbaba ng dami ng Suplay )
The observed positive relationship between price and quantity supplied can be shown using a table
or a graph called SUPPLY SCHEDULE AND SUPPLY CURVE
SUPPLY SCHEDULE is a table that shows the relationship between the price of a good and the quantity
supplied. It is a relationship between the price suppliers are willing to sell a specific quantity of a good or
service.
Consider the succeeding table. The table shows the relationship of Price and a quantity supply of
Hamburgers
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.
Table 3. Supply Schedule of Chicken per month
Selling Price /Pack Quantity supplied
100 20
120 25
140 35
150 40

Figure 3 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

Price /Kilogram Quantity supplied/kg

100 15
120 20
140 25
150 30

Figure 4 shows the first line

(S) which is the same as
supply curve shown in
Figure 3 and the second
line (S1) 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
 WORKSHEET
ABM 12 – ST. TERESA OF CALCUTTA
Quarter 1: S.Y. 2024 – 2025

Name: _______________________________________________________________________ Score: _________

Answer the following questions.
II. Multiple Choice Questions: Market Demand
____1. Which of the following best describes the law of demand?
a) As price increases, quantity demanded increases.
b) As price decreases, quantity demanded increases.
c) As price increases, demand remains constant.
d) As price decreases, quantity demanded decreases.
____2. What is likely to happen to the demand for a product if its price falls?
a) Demand curve shifts to the left. b) Quantity demanded increases.
c) Quantity demanded decreases. d) Supply curve shifts to the right.
____3. Which of the following is not a determinant of demand?
a) Consumer income b) Price of related goods
c) Technology in production d) Consumer tastes and preferences
____4. When a good becomes more popular due to a new trend, what happens to its demand curve?
a) Shifts to the left b) Shifts to the right
c) Remains unchanged d) Shifts downwards
____5. If the price of a substitute good increases, what is likely to happen to the demand for the
original good?
a) Decrease b) Increase c) Remain unchanged d) Decrease, then
increase
____6. Which term describes goods that are typically consumed together, such that an increase in
the price of one leads to a decrease in the demand for the other?
a) Substitutes b) Complements c) Inferior goods d) Normal goods
____7. A decrease in consumer income will likely decrease the demand for which type of goods.
a) Inferior goods b) Normal goods c) Public goods d) Substitute
goods
____8. Which of the following scenarios would cause a movement along the demand curve rather
than a shift of the curve?
a) Change in consumer income b) Change in the price of the good itself
c) Change in consumer preferences d) Change in the price of a substitute good
____9. When consumers expect future prices to rise, how does this expectation affect current
demand?
a) Current demand decreases b) Current demand increases
c) Current demand remains unchanged d) Supply decreases
____10. Which of the following would likely cause an increase in the demand for electric cars?
a) A decrease in gasoline prices
b) An increase in electricity costs
c) Introduction of a government subsidy for electric car purchases
d) A decrease in consumer income

II. Determine whether each statement is TRUE or FALSE.

____1. When the price of a product increases, the quantity demanded usually decreases.
____2. A decrease in consumer income typically decreases the demand for normal goods.
____3. Substitute goods are products that are used together, so an increase in the price of one
decreases the demand for the other.
____4. The demand curve for a good shifts to the right if there is an increase in consumer
preferences for that good.
____5. If the price of a complementary good rises, the demand for the original good also rises.
 ____6. Market demand refers to the total quantity of a good that all consumers are willing and
able to buy at different prices in a given period.
____7. A change in the price of a good will cause a shift in the demand curve for that good.
____8. An increase in the number of consumers in the market typically leads to an increase in
demand.
____9. When consumers expect prices to fall in the future, the current demand for the product
may decrease.
____10. A normal good is one where demand decreases as consumer income increases.

II. Short Answer Questions:

Explain how a change in the price of a complementary good affects the demand for a product.

[Link] Choice Quiz: Market Supply

___1. Which of the following best describes the law of supply?
a) As price increases, quantity supplied decreases.
b) As price decreases, quantity supplied increases.
c) As price increases, quantity supplied increases.
d) As price decreases, supply remains constant.
___2. What happens to the supply of a good if the cost of production increases?
a) Supply increases b) Supply decreases
c) Supply remains unchanged d) Demand increases
___3. Which of the following is NOT a determinant of supply?
a) Technology b) Prices of related goods
c) Number of suppliers d) Consumer income
___4. If new technology reduces the cost of producing a good, what happens to the supply
curve?
a) Shifts to the left b) Shifts to the right
c) Remains unchanged d) Shifts upward
___5. Which of the following is likely to cause a decrease in supply?
a) A decrease in the cost of raw materials
b) An improvement in production technology
c) An increase in government taxes on production
d) An increase in the number of suppliers
___6. What effect does an increase in the number of suppliers have on the market supply
curve?
a) It shifts to the left b) It shifts to the right
c) It becomes steeper d) It becomes flatter
___7. How does a subsidy given to producers affect the supply of a good?
a) It decreases supply b) It has no effect on supply
c) It increases supply d) It shifts demand to the right
___8. Which of the following would cause the supply curve for wheat to shift to the right?
a) A drought that reduces crop yields
b) A decrease in the price of wheat
c) A decrease in the cost of fertilizer
d) An increase in the price of corn (a substitute in production)
___9. If producers expect future prices to rise, what is likely to happen to current supply?
a) Current supply decreases b) Current supply increases
c) Current supply remains unchanged d) Current supply becomes more elastic
___10. Which scenario would most likely lead to a movement along the supply curve rather
than a shift in the curve?
a) A change in the price of the good itself b) A change in the cost of inputs
c) A change in production technology d) A change in the number of suppliers
II. Determine whether each statement is TRUE or FALSE.
____1. The law of supply states that as the price of a good increases, the quantity supplied
decreases.
____2. An increase in the cost of raw materials will typically decrease the supply of a good.
____3. Technological advancements that lower production costs cause the supply curve to shift to
the right.
____4. If the government imposes a new tax on production, the supply of the affected good is likely
to increase.
 ____5. A subsidy provided by the government to producers typically leads to a decrease in supply.
____6. An increase in the number of suppliers in a market will generally shift the supply curve to the
right.
____7. Supply curves are generally upward sloping, reflecting the direct relationship between price
and quantity supplied.
____8. A movement along the supply curve is caused by a change in the price of the good itself,
rather than a change in other factors.
____9. If producers expect the price of their product to fall in the future, they may decrease current
supply.
____10. A decrease in the price of inputs used in production will shift the supply curve to the left.

III. Short Answer Questions

What happens to the supply of a product if the cost of production decreases? Explain your
answer.