Le sso n 2.

The Law of Demand and Supply

Applied Economics
General Academic Strand | Accountancy, Business, and Management
 Learning
Compet ency Explain the law of supply and demand, and how
equilibrium price and quantity are determined
(ABM_AE12-Ie-h-4).

2
 ● Identify and differentiate the different types of
Learning
market systems.
Object ives

● Differentiate between quantity demanded and

demand; and quantity supplied and supply.

● Create a demand and supply schedule.

● Construct a demand and supply curve.

● Explain how market equilibrium is achieved.

3
 Which is which?
Let ’s
Connect
In this activity, put yourselves in the shoes of
both buyer and seller. Choose which items to
buy or sell.

First round: You are the buyers.

4
 Which would you buy?
Let ’s
Connect

₱1,550 ₱950
5
 Which would you buy?
Let ’s
Connect

₱1,200 ₱700
6
 Which would you buy?
Let ’s
Connect

₱899 ₱1,199
7
 Which would you buy?
Let ’s
Connect

₱2,100 ₱1,799
8
 Which would you buy?
Let ’s
Connect

₱350 ₱500
9
 Which is which?
Let ’s
Connect
In this activity, put yourselves in the shoes of
both buyer and seller. Choose which items to
buy or sell.

Second round: You are the sellers.

10
 Which would you sell?
Let ’s
Connect

₱1,200 ₱700
11
 Which would you sell?
Let ’s
Connect

₱1,550 ₱950
12
 Which would you sell?
Let ’s
Connect

₱350 ₱500
13
 Which would you sell?
Let ’s
Connect

₱2,100 ₱1,799
14
 Which would you sell?
Let ’s
Connect

₱899 ₱1,199
15
 In t h e first ro u n d , wh ich o f t h e fo llo win g it e m s
Let ’s d o yo u wish t o b u y? Wh y?
Connect

16
 In t h e se co n d ro u n d , wh ich o f t h e fo llo win g
Let ’s it e m s d o yo u wish t o se ll? Wh y?
Connect

17
 Wh a t is t h e d iffe re n ce b e t we e n t h e ch o ice s yo u
Let ’s m a d e a s a b u ye r a n d a s a se lle r?
Connect

18
Essent ial
Quest ion

Why is there a need to learn fundamental

economic concepts?

19
 Market

This is where buyers and sellers meet to exchange goods

and services.
20
 Market

This is where buyers and sellers meet to exchange goods

and services.
21
 Market

The dynamics of the

market depends on
how the government
manages it.

Two classifications:
● Fre e m a rke t e co n om y
● Co m m a n d e co n o m y

22
 Market

Free Market Economy

● Also known as capitalism

● Adopts a laissez-faire a p p ro a ch with lim ite d

go ve rn m e n t in te rve n tio n
● Eco n o m ic p la ye rs a re d rive n b y self-interest.

23
 Market

Command Economy

● Also known as socialism or communism

● The government owns most properties and resources,
and economic decisions are made through a central
economic plan.

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Law of Demand

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 Law of Demand

As prices increase,
quantity demanded
decreases. Conversely, as
prices decrease, quantity
demanded increases.

The demand curve

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Law of Demand

Keeping factors
constant or at ceteris
paribus, b u ye rs will
p u rch a se m ore a t
lowe r p rice s a n d le ss
a t h igh e r p rice s.

27
Law of Demand

Qd = a - b(P)

Where:
● Qd is fo r q u a n tity d e m a n d e d
● a is fo r o th e r n o n -p rice fa cto rs
● b is fo r th e slo p e o f th e d e m a n d cu rve
● P is fo r p rice

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 Law of Demand

Qu a n tity De m a n d e d Demand

It is the number of units It is the set of all quantities

that a buyer is willing to demanded at different
purchase at any given price levels.
price.

29
 Check
Your
Progress

Is quantity demanded the same as demand?

Why or why not?

30
 Juan is a school principal who plans to purchase
Let ’s
Calculat e notepads. His willingness and capacity to buy
chairs can be described by the equation

Qd = 150 - 3P.

Cre a te a d e m a n d sch e d u le a n d a d e m a n d cu rve

wh e re th e a ve ra ge p rice of a n ote p a d is a t ₱20,
₱30, a n d ₱40.

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 Let ’s Step 1: Applying the rule of substitution, solve for
Calculat e Qd u sin g th e d e m a n d fu n ction Qd = 150 - 3P.

Qd = 150 - 3P
Qd = 150 - [3(20)]
Qd = 150 - 60
Qd = 90

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 Step 2: Repeat Step 1 for price levels ₱30 a n d
Let ’s ₱40.
Calculat e

When P = 30: When P = 40:

Qd = 150 - 3P Qd = 150 - 3P
Qd = 150 - [3(30)] Qd = 150 - [3(40)]
Qd = 150 - 90 Qd = 150 - 120
Qd = 60 Qd = 30

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 Step 3: Create the demand schedule.
Let ’s
Calculat e
Price (P) Qu a n tity d e m a n d e d (Qd )
₱20 90
₱30 60
₱40 30

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 Step 4: Plot the points in a graph.

Let ’s
Calculat e

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 Check
Your Nita loves fashion. Her willingness and capacity
Progress
to buy clothes can be described by the
equation Qd = 80 - P. Cre a te a d e m a n d
sch e d u le a n d a d e m a n d cu rve wh e re th e
a ve ra ge p rice of cloth in g is a t ₱25, ₱35, a n d
₱45.

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 Law of Supply

As prices increase,
quantity supplied
increases. Consequently,
as prices decrease,
quantity supplied
decreases.

The supply curve

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Law of Supply

Driven by profits,
suppliers will sell more
with higher prices and
less at lower prices.

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Law of Supply

Qs = a + b(P)

Where:
● Qs is for q u a n tity d e m a n d e d
● a is fo r o th e r n o n -p rice fa cto rs
● b is fo r th e slo p e o f th e su p p ly cu rve
● P is fo r p rice

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 Law of Supply

Qu a n tity Su p p lie d Supply

It is the number of units It is the set of all quantities

that a seller is willing to supplied at different price
produce at any given price. levels.

40
 Check
Your
Progress

Why does the supply curve go up?

41
 Rey is a friend of Juan and he sells notepads. His
Let ’s
Calculat e willingness and capacity to sell notepads can be
described by the equation Qs = 150 + 2P. Cre a te
a su p p ly sch e d u le a n d a su p p ly cu rve wh e re th e
a ve ra ge p rice of a n o te p a d is a t ₱20, ₱30, a n d
₱40.

42
 Let ’s Step 1: Applying the rule of substitution, solve for
Calculat e Qs using the supply function Qs= 150+ 2P.

Qs= 150+ 2P
Qs= 150+ [2(20)]
Qs= 150+ 40
Qs= 190

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 Step 2: Repeat Step 1 for price levels ₱30 a n d
Let ’s ₱40.
Calculat e

When P = 30: When P =

40:
Qs = 150 + 2P Qs =
150 + 2P
Qs = 150 + [2(30)] Qs = 150 +
[2(40)]
Qs = 150 + 60 Qs =
150 + 80 44
 Step 3: Create the supply schedule.
Let ’s
Calculat e
Price (P) Qu a n tity su p p lie d (Qs)
20 190
30 210
40 230

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 Step 4: Plot the points in a graph.

Let ’s
Calculat e

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 Check
Your Anna is a garment manufacturer. Her
Progress
willingness and capacity to supply clothes can
be described by the equation Qs = 65 + 4P.
Cre a te a su p p ly sch e d u le a n d cu rve wh e re th e
a ve ra ge p rice of cloth in g is a t ₱25, ₱35, a n d
₱45.

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 Market Equilibrium

● Market equilibrium is the point where the quantity

demanded is equal to the quantity supplied.

● The price where the quantity demanded is equal to

the quantity supplied is called the equilibrium price
or the market clearing price.

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 Rearrange the letters to form the correct answer.
Try This!

Who is responsible for regulating markets?

VERM EN N G O T

49
 Rearrange the letters to form the correct answer.
Try This!

It is where buyers and sellers meet to exchange

goods and services.

T M REK A

50
 Rearrange the letters to form the correct answer.
Try This!
It is the ability and willingness of buyers to
purchase goods and services.

D D U YD N A Q T A M T EN EI

51
 Rearrange the letters to form the correct answer.
Try This!
It is the ability and willingness of sellers to
produce goods and services

P Q I I P L ET U D N A ST YU

52
 Rearrange the letters to form the correct answer.
Try This!
It describes the inverse relationship between
price and quantity demanded.

D M D O W EA L N FA

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 ● There are two market systems, free market
Wrap-Up
or capitalism, and command economy or
communism or socialism.

● Many countries adopt a mixed market

system where it adopts both capitalist and
socialist ideas.

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Wrap-Up
● The law of supply states that as price increases,
quantity supplied increases; as price decreases,
quantity supplied also decreases. The law of
demand states that as price increases, quantity
demanded decreases; as price decreases,
quantity demanded increases.

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 ● Quantity demanded and quantity supplied
Wrap-Up
reflects buyers' willingness and ability to
purchase and sellers' willingness and ability to
produce goods and services.

● Market equilibrium is th e p oin t wh e re

q u a n tity su p p lie d is e q u a l to q u a n tity
dem anded.

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Wrap-Up ● The price at which quantity demanded and
quantity supplied are equal is called equilibrium
price or market clearing price.

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Challenge
Yourself
Create a realistic scenario of market activity.
Be sure to include the buyers and sellers, what
goods or services they are exchanging, and
where the activity is happening.

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Photo Credits

Slide 3: Courtesy of the Department of Trade and Industry.

Slide 4: 2020-04-04-Maskenproduktion COVID-19-8505 by Superbass is licensed under CC BY-SA 4.0 via Wikimedia
Commons.

Slide 13: Produce market. Batac City. Philippines. (16830189588) by Bernard Spragg. NZ is licensed under CC0 1.0 via
Flickr.

Slide 14: 1966 Leaders signing the Manila summit agreement at Malacanang Palace by manhhai is licensed under CC
BY 2.0 via Flickr.

Slide 39: Souvenir shop owner 1765 (506977642) by James Emery is licensed under CC BY 2.0 via Wikimedia
Commons.

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Bibliography

CNN Philippines. “DTI to Allow Higher Selling Price of Face Masks.” February 7, 2020.
https://www.cnnphilippines.com/news/2020/2/7/DTI-higher-face-masks-price.html.

Mankiw, N. Gregory. Principles of Economics. 6th e d . Ma son , Oh io: Sou th -We ste rn Ce n ga ge Le a rn in g, 2 012.

McCon n e ll, Ca m p b e ll R, Sta n le y L Bru e , a n d Se a n M Flyn n . Economics: Principles, Problems, and Policies. Ne w York,
Ne w York: McGra w-Hill/Irwin , 2009.

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