Lesson 2.

The Law of Demand and

Supply

Applied Economics
General Academic Strand | Accountancy, Business, and Management
 Learning
Competen
cy 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 market systems.
Learning
Objectives
● 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
 Market

This is where buyers and sellers meet to exchange

goods and services.
4
 Market

The dynamics of the

market depends on
how the government
manages it.

Two classifications:
● Free market economy
● Command economy

5
 Market

Free Market Economy

● Also known as capitalism

● Adopts a laissez-faire approach with limited

government intervention
● Economic players are driven by self-interest.

6
 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.

7
 Law of Demand

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

The demand curve

8
Law of Demand

Keeping factors
constant or at
ceteris paribus,
buyers will
purchase more at
lower prices and
less at higher
prices.
9
Law of Demand

Qd = a - b(P)

Where:
● Qd is for quantity demanded
● a is for other non-price factors
● b is for the slope of the demand curve
● P is for price

10
 Law of Demand

Quantity Demanded Demand

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

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

11
 Check
Your
Progress

Is quantity demanded the same as

demand? Why or why not?

12
 Let’s Juan is a school principal who plans to
Calcula
te
purchase notepads. His willingness and
capacity to buy chairs can be described by
the equation

Qd = 150 - 3P.

Create a demand schedule and a demand

curve where the average price of a notepad
is at ₱20, ₱30, and ₱40. 13
 Let’s
Step 1: Applying the rule of substitution,
Calcula
te solve for Qd using the demand function Qd =
150 - 3P.

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

14
 Step 2: Repeat Step 1 for price levels ₱30
Let’s
Calcula and
te ₱40.

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
15
 Let’s Step 3: Create the demand schedule.
Calcula
te
Price (P) Quantity demanded (Qd)
₱20 90
₱30 60
₱40 30

16
 Step 4: Plot the points in a graph.
Let’s
Calcula
te

17
 Check
Your Nita loves fashion. Her willingness and
Progress
capacity to buy clothes can be described
by the equation Qd = 80 - 2P. Create a
demand schedule and a demand curve
where the average price of clothing is at
₱15, ₱25, and ₱35.

18
 Law of Supply

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

The supply curve

19
Law of Supply

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

20
Law of Supply

Qs = a + b(P)

Where:
● Qs is for quantity supplied
● a is for other non-price factors
● b is for the slope of the supply curve
● P is for price

21
 Law of Supply

Quantity Supplied Supply

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

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

22
 Check
Your
Progress

Why does the supply curve go up?

23
 Let’s Rey is a friend of Juan and he sells notepads.
Calcula His willingness and capacity to sell notepads
te
can be described by the equation Qs = 150 +
2P. Create a supply schedule and a supply
curve where the average price of a notepad
is at ₱20, ₱30, and ₱40.

24
 Let’s
Step 1: Applying the rule of substitution,
Calcula
te solve for Qs using the supply function Qs=
150+ 2P.

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

25
 Step 2: Repeat Step 1 for price levels ₱30
Let’s
Calcula and
te ₱40.

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
Qs = 210 Qd = 230
26
 Let’s Step 3: Create the supply schedule.
Calcula
te
Price (P) Quantity supplied (Qs)
20 190
30 210
40 230

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 Step 4: Plot the points in a graph.
Let’s
Calcula
te

28
 Check
Your Anna is a garment manufacturer. Her
Progress
willingness and capacity to supply clothes
can be described by the equation Qs = 65
+ 4P. Create a supply schedule and curve
where the average price of clothing is at
₱25, ₱35, and ₱45.

29
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.

30
 Rearrange the letters to form the correct
Try answer.
This!

Who is responsible for regulating

markets?

VERMENNGOT

31
 Rearrange the letters to form the correct
Try answer.
This!
It is where buyers and sellers meet to
exchange goods and services.

TMREKA

32
 Rearrange the letters to form the correct
Try answer.
This! It is the ability and willingness of
buyers to purchase goods and services.

DDUYDNAQTAMTE
NEI

33
 Rearrange the letters to form the correct
Try answer.
This! It is the ability and willingness of sellers
to produce goods and services

PQIIPLETUDNAST
YU

34
 Rearrange the letters to form the correct
Try answer.
This! It describes the inverse relationship
between price and quantity demanded.

DMDOWEALNFA

35
Wrap- ● There are two market systems, free
Up
market or capitalism, and command
economy or communism or socialism.

● Many countries adopt a mixed market

system where it adopts both capitalist
and socialist ideas.

36
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.

37
Wrap- ● Quantity demanded and quantity
Up
supplied reflects buyers' willingness and
ability to purchase and sellers' willingness
and ability to produce goods and services.

● Market equilibrium is the point where

quantity supplied is equal to quantity
demanded.

38
Wrap- ● The price at which quantity demanded and
Up
quantity supplied are equal is called
equilibrium price or market clearing
price.

39
Challen
ge
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.

40
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 ed. Mason, Ohio: South-Western Cengage Learning, 2012.

McConnell, Campbell R, Stanley L Brue, and Sean M Flynn. Economics: Principles, Problems, and Policies.
New York, New York: McGraw-Hill/Irwin, 2009.

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