ABM- Applied Economics 12 Q1 W4 Mod4 PDF

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Republic of the Philippines Department of Education National Capital Region

DIVISION OF CITY SCHOOLS – MANILA Manila Education Center Arroceros Forest Park Antonio J. Villegas St. Ermita, Manila

Applied Economics Implications of Market Pricing in Making Economic Decisions

https://www.thoughtco.com/supply-and-demand-practice-questions-1146966

Quarter 1 Week 4 Mo Learning Competency Determine the implications of mark pricing in making economic decisio

HOW TO USE THIS MODULE Before starting the module, I want you to set aside other task/s that may disturb you while enjoying the lessons. Read the simple instructions below to successfully enjoy the objectives of this kit. Have fun! Follow carefully all the contents and instructions indicated in every page of this module. Write on your notebook the concepts about the lessons. Writing enhances learning that is important to develop and keep in mind. Perform all the provided activities in the module. Let your facilitator/guardian assess your answers using the answer key card. Analyze conceptually the posttest and apply what you have learned. Enjoy studying!

PARTS OF THE MODULE   

Expectations - These are what you will be able to know after completing the lessons in the module. Pre-test - This will measure your prior knowledge and the concepts to be mastered throughout the lesson.

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Looking Back to your Lesson - This section will measure what learnings and skills did you understand from the previous lesson. Brief Introduction- This section will give you an overview of the

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lesson. Activities - This is a set of activities you will perform with a partner.

 

Remember - This section summarizes the concepts and applications of the lessons. Check your Understanding - It will verify how you learned from the lesson.

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Post-test - This will measure how much you have learned from the entire module

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LESSON 4

Implications of Market Pricing in Making Economic Decisions EXPECTATIONS

Specifically, this module will help you to:

1. determine the implications of market pricing in making economic decisions 2. explore the elasticity of demand and supply 3. solve problems on price elasticity of demand and supply 4. value the implications of market pricing in decision making

PRE-TEST

Are you excited to to learn new sets of knowledge? Let us check your knowledge about the topic. Have fun learning! Part I. Graph Analysis Directions: Please analyse the graph and answer the questions below. Write your answer on the space/s provided for each question. When do you have a surplus in the supply of product?

When do you have a shortage in the supply of product?

1)____________________ ____________________

2)____________________ ____________________

https://study.com/academy/lesson/characteristics-of-the-price-system-in-a-market-economy.html

3. Using the chart above, kindly describe the point where there is a a) surplus ____________________________________ b) shortage ___________________________________ c) equilibrium in price _________________________ 4. What is surplus, shortage and equilibrium price? Define the terms. Surplus______________________________________________________________ Shortage_____________________________________________________________ Equilibrium price_____________________________________________________ 3

Part II. Multiple Choice Questions Directions: Please read the statements carefully. Encircle the correct answer. 1. In the market, the price elasticity for the demand of canned goods sold by Aling Puring Grocery Store is the: a) ratio of the percentage change in quantity demanded for the goods to the percentage change in its price b) responsiveness of revenue to a change in quantity of the canned goods c) ratio of the change in quantity demanded divided by the change in its price of the canned goods d) response of revenue to a change in the price 2. If demand for sacks of rice in Aling Puring Grocery Store is price elastic, then a: a) rise in the price of sacks of rice will raise total revenue of the grocery b) fall in the price of sacks of rice will raise total revenue of the store c) fall in the price of sacks of rice will lower the quantity demanded d) fise in the price of sacks of rice won't have any effect on total revenues 3. If the cross-price elasticity between soap bar and liquid soap commodities is 1.5, a) the two goods are luxury goods b) the two goods are complements c) the two goods are substitutes d) the two goods are normal goods 4. The price elasticity of demand for a certain good tends to be: a) smaller in the long run than in the short run b) smaller in the short run than in the long run c) larger in the short run than in the long run d) unrelated to the length of time

5. If the price elasticity of supply of cup noodles is 0.60 and the price increase by 3 percent, then the quantity supplied for cup noodles increases by how by? a) 0.60 percent. b) 0.20 percent c) 1.8 percent d) 18 percent

Show me your solution here

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

Great job! You finished answering the questions. You may now request your facilitator to check your work. Congratulations and keep on learning! 4

LOOKING BACK TO YOUR LESSON

As we go further, let us try to recall the concepts of market demand, market supply and market equilibrium. Please perform this. PART I. TRUE OR FALSE Directions: Write TRUE if the statement is correct and FALSE if tincorrect. Write your answer on the space provided for each number. 1.

_______The equilibrium point is the level where the demand and supply

curves intersect. 2.

_______If the price is above the equilibrium level, the quantity

demanded is greater than the quantity supplied. 3.

_______If the price is below the equilibrium point, the quantity

demanded is lesser than the quantity supplied. 4.

________The law of demand applies during online sales of computers

when consumers rush to buy products at 30% discounts. 5.

The law of supply applies when the producers supply more masks at a

higher price; selling at higher quantity at a higher price increases revenue. 6.

__________If the price is below the equilibrium level, then the quantity

demanded will exceed the quantity supplied.

7.

__________Shortage will exist if the price is below the equilibrium point

8.

__________The law of supply and demand explains the interaction between

the sellers of a product and the buyers.

9.

___________The demand curve is always downward sloping due to the law of

diminishing marginal utility.

10.

__________The supply curve shows an upward slope.

PART II Make Meaning Internet Assisted Activity Directions: Give the meaning of the following words/phrases. You may use the internet to substantiate your ideas. Price Elasticity__________________________________________________________ Price Elasticity of Demand_______________________________________________ Price Elasticity of Supply________________________________________________

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BRIEF INTRODUCTION

Market Pricing on Making Economic Decisions Please read this article on Demand, Supply and Elasticity of Clean Water in the Philippines. This will help you understand better our new lesson. Enjoy reading! Demand, Supply and Elasticity of Clean Water in the Philippines 8/27/2015 According to an article created by Vice News, there are 55 people who die in the Philippines every day because of the lack of clean water. As one can see clean water is greatly needed by all people. As a student who is lucky to be given all the necessities needed in life it would be normal not to think of this because we normally do not notice it. However, we need to. According to Katrina Arianne Ebora, who works for UNICEF’s Water, Sanitation and Hygiene program in the Philippines stated that “Over 30 million people in the Philippines do not have access to improved sanitation facilities.” Also, according to the PIS by 2050 the population of the areas with poverty in Manila will reach over 9 million! With the rising population of the Philippines there will be a problem with the economy of clean water because there will be too much demand for the supply of water. .

https://redmonteconomics.weebly.com/blog/demand-supply-and-elasticity-of-clean-water-in-the-philippines

The Marketing Price System Last module, we talked about the market demand, market supply and market equilibrium. In our new topic, we will link more of these variables to the market price system. For example, in the article above, the causes and effects of the water shortage around the Philippines could be best explained if we could understand the concepts of demand and supply elasticity of the clean water. A shortage is when there is an excess demand for the quantity supplied. While surplus is excess in supply. For example, if there are 10 bottles of water and there are 20 students who want drinking these, then there will be only 10 students whose demands are met while the others will not be able to be given anything. There is shortage in the supply. If producers make too many bottles of water and consumers cannot by them want to buy them, there will be surplus.

Price System in a Market Economy Let us find out more about the price system. We have learned that demand is the willingness of the consumers to buy goods and services. In economics, the willingness to buy goods and services should be accompanied by the ability to buy, also called the “purchasing power”. This is referred to as an effective demand (source: Investopedia). 6

EQUILIBRIUM

CHARACTERISTICS

Equilibrium is a point of balance or a point of rest. It is also called “market-clearing price”.

The supply and demand are balanced in equilibrium.

Equilibrium 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

The economic forces are balanced and in the absence of external influences, the (equilibrium) values of economic variables will not change.

Quantity demanded and quantities supplied are equal.

The amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers.

Are you enjoying the lesson? Let us proceed to the next topic. Price System in a Market Economy: Its Characteristics

Let us learn more! The prices of goods that we encounter everyday to the things we buy plays a crucial role in determining an efficient distribution of resources in a market system. The prices will help us to make every day economic decisions about our needs and desires. They are the indications of the acceptance of a product; the more popular the product, the higher the price that can be charged. Example is when a tables are for sale in your community today and is assumed that they are not very important as compared to other products or commodities that we need to survive especially that aour movements are very limited. Neither the producers nor consumers can impact Price acts as a signal for shortages and prices; consumers can buy surpluses which help firms and consumers whatever they want; nor can respond to changing market conditions. producers make and sell whatever they want  If a good is in shortage – price will tend to rise. Rising prices discourage demand, and Prices are decided by encourage firms to try and increase supply. interactions between the producers and the consumers.  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

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We explore more how equilibrium happens. The market price is Let us analyze the chart below. the point that the supply The chart shows a surplus – the quantity is and demand curves greater than demand. When quantity is greater intersect. (Judge, S. 2020) than demand it causes prices to go down.

Figure 1. The Equilibrium Point or the Market Price Point Figure 2. Surplus Point https://study.com/academy/lesson/characteristics-of-the-price-syste m-in-a-market-economy.html

PRICES ARE MARKET DRIVEN The producers can make what they want and consumers are free to purchase what they want. This means that customers live in a market economy. When prices are high, supply increases as many firms join the market (Judge, S. 2020). Let’s say the units of cellular phones. The numbers of suppliers have increased because of high prices of the cellular phones. When smartphones were new in the market, there were fewer producers and prices were high. The high prices attracted the producers to join the market (Judge, S. 2020).

https://study.com/academy/lesson/characteristics-of-the-pricesystem-in-a-market-economy.html https://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_dem and.html

Figure 3. Shortage Point In shortage, quantity is less than the demand; it causes prices to go up due to scarcity Example of which is the shortage in masks and ethyl alcohol in the market. There is shortage in the supply, thus, price tends to go up or tends to go higher (Judge, S. 2020).

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. 8

The Law of Demand Again, what is a demand? We said last The demand curve is always time that it is the desire of a consumer to downward sloping due to the purchase goods or services and willingness to law of diminishing marginal pay a at for that product or services at a given utility. price. If all other factors remain equal, the higher the price of a good, the fewer people will demand that good. “the higher the price, the lower the quantity demanded” and vice versa. (source: Investopedia) https://www.ducksters.com/money/supply_and_demand.php

The Law of Supply The law of supply demonstrates the quantities that will be sold at a given price. The higher the price, the higher The quantity supplied and vice versa.

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 is the price at which a producer can sell all the units he wants to produce and a 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 t to charge higher, the more they will be willing to produce and bring products 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

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PRICE ELASTICITY OF DEMAND AND SUPPLY Can you guess what happened with this mom in a market? You may write your reaction in the shape towards her. Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. Elasticity can be described as: a) elastic or very responsive and b) unit elastic, or inelastic or not very responsive. (source: Investopedia)

Effects of Change in Demand and Supply Elastic demand or supply curve indicates that quantity demanded or supplied respond to price changes in a greater than proportional manner. Inelastic demand or supply curve is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied. Unitary elasticity means that a given percentage changes in price leads to an equal percentage change in quantity demanded or supplied.

CATEGORIES OF PRICE ELASTICITY According to Agarwal, P. (2018) and Judge, S. (2020), there are four categories of price elasticity are the following: I. The Price Elasticity of Demand Price elasticity of demand is the responsiveness of quantity demanded, or how much quantity demanded changes, given a change in the price of goods or services. *The mathematical value is negative . A negative value indicates an inverse relationship between price and the quantity demanded. But the negative sign is ignored (Judge, S. 2020). Price Elasticity of Demand (PED)= % change in quantity demanded % Change in price

https://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_demand.html

Figure 4 Price Elasticity of Demand

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a) Elastic Demand (PED > 1) - the percentage change in price brings about a more than proportionate change in quantity demanded. When the percentage change in quantity demanded is greater than the percentage change in price, and the coefficient of the elasticity is greater than 1. Example real estate- housing - There are many different housing choices. People may live in a townhouses, condos, apartments, or resorts. The options make easy for people to not pay more than they demand.

b) Inelastic Demand (coefficient of the elasticity is less than 1) – is when an increase in price causes a smaller % fall in demand. When the percentage change in quantity demanded is less than the percentage change in price, and the coefficient of the elasticity is less than 1. Example Gasoline – gasoline has few alternatives; people with cars consider it as a necessity and they need to buy gasoline. There are weak substitutes, such as train riding, walking and buses. If the price of gasoline goes up, demand is very inelastic. Other Examples: Diamonds, aircon, Iphone, Cigarettes c) Unitary Elastic Demand - When the percentage change in demand is equal to the percentage change in price, the product is said to have Unitary Elastic demand. Unitary elastic - PED or the price elasticity of demand is 1 d) Perfectly Elastic - a small percentage change in price brings about a change in quantity demanded from zero to infinity.

Perfectly elastic - the coefficient of elasticity is equal to infinity (∞)

e) Perfectly Inelastic - the PED is =0 any change in price will not have any effect on the demand of the product. Perfectly inelastic - the percentage change in demand will be equal to zero (0)

POINT ELASTICITY a)

The midpoint elasticity is less than 1. (Ed < 1). Price reduction leads to reduction in the total revenue of the firm. b) The demand curve is linear (straight line), it has a unitary elasticity at the midpoint. The total revenue is maximum at this point. c) Any point above the midpoint has elasticity greater than 1, (Ed > 1).

II. The Income Elasticity of Demand (YED) The income elasticity of demand is the relationship between changes in quantity demanded for a good and a change in real income. 11

• YED = % 𝑐ℎ𝑎 𝑎𝑛𝑔𝑒 𝑖𝑛 𝑑𝑒𝑚 𝑑𝑒𝑚𝑎𝑛𝑑 𝑎𝑛𝑑 % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜 𝑖𝑛𝑐𝑜𝑚𝑒 𝑚𝑒 Normal Goods – are those goods for which the demand r...