Module 4 Implications of Market Pricing in Making Economic Decisions

Implications of
Market Pricing in
Making Economic
Decisions
Content Standards
The learner demonstrates understanding of economics
as an applied science and its utility in addressing the
economic problems of the country.
Performance Standards
The learners shall be able to analyze and propose
solutions/to the economic problems using the
principles of applied economics.
Learning Competencies/Objectives
Determine the implications of market pricing on
economic decision-making.
Review pass lesson.
In 2-3 sentences, explain the important concept of
market demand, market supply and market
equilibrium.
Motivation Activity
Motivation Activity
Motivation Activity
Motivation Activity
In 2-3 sentences, answer the following questions.
1. What can you say about these picture?
2. How can we improve Philippine products that could

help our economy?
3. How can our local products compete with foreign

products?
The Marketing Price System
Prices are decided by many interactions between

producers and consumers. The market price is the point
that the supply and demand curves intersect. It is also
the price of a commodity sold in the market.
A surplus which means the quantity is greater than
demand. When quantity is greater than demand it causes
prices to go down. For example, the causes and effects
of the personal protective equipment (PPE) in the
Philippines could be best explained if we could
understand the concepts of demand and supply.
A shortage is when there is an excess demand for
the quantity supplied. While surplus is excess in supply.
For example, if there are 2000 personal protective
equipment (PPE) available in the market and there are
3000 medical front liners/consumers who need to used
it, then there will be only 2000 medical front
liners/consumers 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 PPE and medical
front liners/ consumers do not want to buy them, there
will be a surplus.
Price acts as a signal for shortages and surpluses which
help companies and consumers respond to changing
market conditions.
• If a product is in shortage – price will tend to rise.

Rising prices discourage demand, and encourage
companies to try and increase supply.
• If a good or product is in the surplus – price will tend
to fall.
Several Functions of Price System
1. Information Function
This price system provides vital information to
producers and resource providers, from the consumers.
* Producers need to know if it is the right time to enter a
market and what to produce at what prices.

1. Information Function
* Resource providers need to know what resources to

provide, how much and at what price.
* Consumers need to know what they are willing and

able to buy.
2. Incentive Function
This price system motivates providers and consumers
to act in different ways.
* Producers are motivated to make profit.

2. Incentive Function
* Resource providers are motivated to allocate natural

resources.
* Consumers are motivated to buy products at the best

possible prices
The market price is the point that supply and demand
curves intersect.
The use of chart/graph shows a surplus – the quantity is
greater than demand. When quantity is greater than
demand it causes prices to go down.
Figure 2. A Surplus Point

What is Demand?
Demand is the amount of commodity consumers are

willing to purchase that are available in the market at a
given price and point of time or over a period of time.
Terms to remember
• Equilibrium—in the economy it is a state of balance.

It is also a state of equality or between market demand
and market supply.
• Market equilibrium - is a market state where the

supply is equal to demand.
Terms to remember
• Equilibrium Price - is also called market clearing

price, the price is the exact quantity that producers take
to market will be bought by consumers.
• Economic Equilibrium - Economic equilibrium is the

combination of economic variables like price and
quantity, in which normal economic processes such as
supply and demand drive the economy.
Terms to remember
• Price - the amount of money that has to be paid to

acquire a given product that represents its value.
Law of Supply and Demand
The law of supply and demand is the interaction

between the sellers of a resource and the buyers. It
shows that as price increases people are willing to
supply more and demand less and vice versa when the
price falls.
The Law of Demand
The law of demand explain the relationship

between price and quantity demanded. Other things
equal, if the price or commodity falls, the quantity
demanded will rise, and if the price of a commodity
rises, it’s quantity demanded will decline. For example
if a person would like to buy a condo unit and cannot
pay for it. There is no demand for condo unit from his or
her side.
The Law of Supply
The law of supply demonstrates price and quantity

supplied of a good are directly related to each other or
remaining constant. When the price of a certain product
increases, the buyers paid for a good as it rises, then
companies or suppliers will produce more of the product
in the market. The higher the price, the higher the
quantity supplied and vice versa.
PRICE ELASTICITY OF DEMAND AND SUPPLY
Elasticity of demand refers to the change in

demand when there is a change such as price or income.
If demand for a good or service is static even when the
price changes, demand is said to be inelastic.
PRICE ELASTICITY OF DEMAND AND SUPPLY
Example of elastic goods include luxury items like

cars, cellphones, jewelries and certain food and
beverages. A luxury goods have a high elasticity of
demand because they are sensitive to price changes. A
good or service may be a luxury item, a necessity, or a
comfort to a consumer. Inelastic good examples –
medicines, electricity, cigarettes, and gasoline.
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)
Example: A grade 12 Senior High School student ask

her mother to buy a latest brand of cellphone.
Effects of Change in Demand and Supply
• Elastic demand or supply curve shows that quantity

demanded or supplied respond to price changes in a
greater than proportional manner.
• Inelastic demand or supply curve is a given

percentage change in price that will cause a smaller
percentage change in quantity demanded or supplied.
Effects of Change in Demand and Supply
• Unitary elasticity means that a given percentage

changes in price leads to an equal percentage change in
quantity demanded or supplied.

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Implications of

2. How can we improve Philippine products that could

3. How can our local products compete with foreign

Prices are decided by many interactions between

• If a product is in shortage – price will tend to rise.

* Producers need to know if it is the right time to enter a

market and what to produce at what prices.

* Resource providers need to know what resources to

* Consumers need to know what they are willing and

* Producers are motivated to make profit.

* Resource providers are motivated to allocate natural

* Consumers are motivated to buy products at the best

Figure 2. A Surplus Point

Demand is the amount of commodity consumers are

• Equilibrium—in the economy it is a state of balance.

• Market equilibrium - is a market state where the

• Equilibrium Price - is also called market clearing

• Economic Equilibrium - Economic equilibrium is the

• Price - the amount of money that has to be paid to

The law of supply and demand is the interaction

The law of demand explain the relationship

The law of supply demonstrates price and quantity

Elasticity of demand refers to the change in

Example of elastic goods include luxury items like

Example: A grade 12 Senior High School student ask

• Elastic demand or supply curve shows that quantity

• Inelastic demand or supply curve is a given

• Unitary elasticity means that a given percentage

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