Applied Economics

Quarter 1 – Module 3
Analyze Market Demand, Market
Supply and Market Equilibrium
(Week 3)
 What I Need to Know

This module was designed and written with you in mind. It is here to help you master
on how to analyze market demand, market supply and market equilibrium. The
scope of this module permits it to be used in many different learning situations. The
language used recognizes the diverse vocabulary level of students. The lessons are
arranged to follow the standard sequence of the course. But the order in which you
read them can be changed to correspond with the textbook you are now using.

The module has only one lesson:

• Lesson 1 – Analyzing Market Demand, Market Supply and Market
Equilibrium
After going through this module, you are expected to:
1. define terms related to market demand, market supply and market
equilibrium
2. find how market demand curve is being derived
3. identify the slope of market demand curve
4. find how market supply curve is being derived
5. identify the slope of market demand curve
6. find the equilibrium of a perfectly competitive market

What I Know

Pre – Assessment
Direction: Choose the letter of the correct answer. Write the letter that corresponds
to your answer on a separate sheet of paper. If you are not really aware of some
items, choose the answer that is best based on your perception. Then go back to
those items as you continue with the lesson.

1. What is market demand?

a. The household demands
b. The sum of all individual demand
c. The number of items a person is willing to buy
d. The collection of all products a person is willing to sell
2. What is market supply?
a. The firms supply
b. The sum of all individual supply
c. The number of items a firm is willing to sell
d. The collection of all products a person is willing to bu
3. In a market demand, what is its slope?
a. Upward b. downward c. horizontal d. vertical

2
 4. In a market where there are two household who has demands of 3 and 5
chocolate bars respectively how many is their market demand in total?
a. 6 b. 7 c. 8 d. 9
5. Which of the following curves best illustrates a market demand curve?

a. b. c. d.
6. Which of the following curves best illustrates a market supply?

a. b. c. d.

7. Which of the following curves best illustrates a market equilibrium?

a. b. c. d.
8. Which of the following law describes the behavior of people wherein
price increases the quantity of products people buy tends to lessen
and when price decreases the quantity of products people buy tends
to increase?
a. Law of Supply
b. Law of Demand
c. Law of Diminishing Marginal Utility
d. Law of Nature
9. It is a point in a curve where the demand and supply meet or
intersect.
a. Equilibrium b. Demand c. Supply d. Origin
10. What do you call the individual sellers in the market?
a. Household b. Costumer c. Supply d. Firm
11. Which of the following is also known as individual demand?
a. Household b. Costumer c. Supply d. Firm
12. What slope does market supply possess?
a. Upward b. Downward c. Horizontal d. Vertical
13. Which of the following refers to the number of products a seller is willing to
sell?
a. Equilibrium b. Demand c. Supply d. Origin
14. Which of the following refers to the number of products a person is
willing and able to buy?
a. Equilibrium b. Demand c. Supply d. Origin
15. Which of the following refers to the point in the curve where it is equal
to 0.
a. Equilibrium b. Demand c. Supply d. Origin

3
 Lesson Analyze Market Demand,
1 Market Supply and
Market Equilibrium
Have you ever wondered how does the market come up with a particular
price for a particular item or product? In this lesson, you will be learning on
how to analyze how market demand and market supply influence present
market price, also known as equilibrium price.

What’s In

In the previous lesson, examining the utility and application of applied

aconomics to solve economic issues and problems was discussed. To serve as
a review, fill the diagram below regarding the economic issues that our
country faces today and provide possible solutions.

Fill the diagram below with possible solutions to different economic problems:

ECONIMIC PROBLEM POSSIBLE SOLUTION/RECOMMENDATION

POVERTY AND UNEQUAL

DISTRIBUTION OF INCOME •
DEMOGRAPHIC CHANGES
AND ITS ECONOMIC
IMPICATIONS (POPULATION)
•
LOW INVESTMENT IN
HUMAN RESOURCE
DEVELOPMENT
•
WEAK INFRASTRUCTURE •
SLOW ADOPTION OF
MODERN TECHNOLOGY •

4
 What’s New

In this part of the module, the teacher will present the new lesson to
the learner.

Do you love eating chocolates? If you are given the chance to buy
chocolates how many chocolates are you willing to buy, given particular
prices below?
Price Of Chocolate Bar Per Piece Quantity Of Chocolate Bar You
Are Willing To Buy
5

12

18
23

25
We
begin the chapter with the individual demand curve—sometimes also called the
household demand curve—that is based on an individual’s choice among different
goods. (In this chapter, we use the terms individual and household interchangeably.
We show how to build the market demand curve from these individual demand
curves. Then we do the same thing for supply, showing how to build a market supply
curve from the supply curves of individual firms. Finally, we put them together to
obtain the market equilibrium. The above activity is an example of how we can obtain
an individual demand curve.

What is It

In this part, the teacher provides brief discussion about the lesson. It
aims to discover and develop new skills to learner.

How does the market come up with one price for a particular product? In
this module, market demand, market supply will be analyzed to understand how
price, also known as equilibrium price is derived.

Market Demand
The activity above is an example of a demand schedule for chocolate bars of
a particular household. For a more concrete example below is a demand schedule
and a demand curve of chocolates for Ella.

5
ELLA’s Demand Schedule and demand Curve for Chocolates

Price in Peso Household

Demand
3 8
5 5
Taking the price of a chocolate bar as
given, Ella decides how many chocolate bars
to buy. Her choice is represented as a point
on the household’s demand curve. For
example, at P5, Ella wishes to consume five
chocolate bars each month. If the price
decreases to P3, Ella buys eight bars every
month. In other words, the quantity
demanded by Ella increases. Equally, if the
price of a chocolate bar increases, the
quantity demanded decreases. This is the law of demand in operation.

NOTE: The household demand curve shows the quantity of chocolate bars
demanded by an individual household at each price. It has a negative slope: higher
prices lead people to consume fewer chocolate bars.

In most markets, many households purchase the good or the service traded.
We need to add together all the demand curves of the individual households to obtain
the market demand curve. To see how this works, take at the demand curve and
schedule below as an example.

Individual and Market Demand for Chocolate

Price Household 1 Household 2 Total
Demand Demand
3 8 3 11
5 5 2 7

Individual and Market Demand Curve for Chocolate

NOTE: Market
demand is obtained
by adding together the
individual demands of
all the households in
the economy.

Because the individual demand curves are downward sloping, the market
demand curve is also downward sloping: the law of demand carries across to the
market demand curve. As the price decreases, each household chooses to buy more

6
of the product. Thus, the quantity demanded increases as the price decreases.
Although we used two households in this example, the same idea applies if there are
200 households or 20,000 households. In principle, we could add together the
quantities demanded at each price and arrive at a market demand curve.

Market Supply
Inside a market, aside from those people who are buying the product, whom
we call household, we also have those what we call firms, the ones who actually
produces and sells the product. Inside the market, for us to be able to come up with
the price, taking consideration of two sides, firm and household, is much needed.
Take illustration below as an example:

Single Firm Supply Schedule and Supply Curve for Chocolates

Price in Peso Firms Supply

3 7
5 8

A firm’s supply curve, shows the

quantity of chocolate bars it is willing to supply
at each price. In our example the firm supplies
seven chocolate bars at P3 and eight chocolate
bars at P5. Just as the market demand curve
tells us the total amount demanded at each
price, the market supply curve tells us the total
amount supplied at each price. It is obtained
analogously to the market demand curve: at
each price we add together the quantity supplied
by each firm to obtain the total quantity supplied
at that price. If we perform this calculation for every price, then we get the market
supply curve. Take the illustration below as an example:

Individual and Market Supply Schedule for Chocolates

Price Individual Individual Supply Total

Supply1 2
3 7 3 10
5 8 5 13

7
Individual and Market Supply for Chocolates

NOTE: Market supply

is obtained by adding
together the individual
supplies of all the firms
in the economy.

Market Equilibrium
For us to obtain the Market Equilibrium we combine the market demand and
supply curves. The point where the curves cross is the market equilibrium. At this
point, there is a perfect match between the amount that buyers want to buy and the
amount that sellers want to sell. The term equilibrium refers to the balancing of the
forces of supply and demand in the market. At the equilibrium price, the suppliers
of a good can sell as much as they wish, and demanders of a good can buy as much
of the good as they wish. There are no disappointed buyers or sellers. Below is an
example of an Equilibrium Schedule and Equilibrium Curve.

Sample of Market Equilibrium Curve

NOTE: The equilibrium price

and the equilibrium quantity
are determined by the
intersection of the supply and
demand curves.

Because the demand curve has a

negative slope and the supply
curve has a positive slope, supply
and demand will cross once. Both
the equilibrium price and the
equilibrium quantity will be
positive.

Sample of Market Equilibrium Schedule

Price Market Supply Market Demand
1 5 95
5 25 75
10 50 50
20 100 0

The above illustration shows an example of market equilibrium with market

supply and market demand at four different prices. The equilibrium occurs at P10
and a quantity of 50 units.

8
 What’s More

The teacher would like to solidify your understanding about the topic
being discussed.

Activity 1
Find the Market demand of the following Individual Demand and draw its Market
Demand Curve.

NO. Household Household Market

PRICE
Demand 1 Demand 2 Demand
1. 2 16 20
2. 5 12 15
3. 7 10 10
4. 9 5 7
5. 15 2 5

Activity 2
Using the Market Supply Curve as the basis fill the missing information on the supply
schedule.

No. PRICE MARKET

SUPPLY

1.
2

2.
3

3.
6

4.

9
 What I Have Learned

In this part of the module, the teacher would like to know what you
have learned in the lesson.

Directions: Read the following items and fill in the blanks with the correct answer.
Choices are provided in the box.

Equilibrium Increase Decrease Upward

Downward Intersect Adding Subtracting
1. As price increases, quantity demanded will ____________, and if price decreases,
quantity demanded will __________, based on the law of demand.
2. The slope of the demand curve is always ____________ sloping.
3. The market supply and demand can be obtained by ____________ the households
demand, for the market demand, and ____________ the individual supply of firms,
for the market supply.
4. The Equilibrium Price and Quantity is the part where the demand and supply
____________.
5. The term ______________ refers to the balancing of the forces of supply and
demand in the market.

What I Can Do

In this part of the module, the teacher would like to know how
you can apply the lesson in real life situation.

Directions: Provide what is asked in each number.

1. Lizzy and Kris are both grade 11 students who are taking up ABM as
their specialization. As part of their Applied Economics subject an
experiment was given to them to find the equilibrium quantity and price
of Buko Juice in their school canteen. During the said experiment the
following data were collected by Lizzy and Kris. Fill out the missing
information and find out the Equilibrium Price and Quantity by drawing
its market equilibrium curve.

10
 No. Demand Demand Market Supply Supply Market
Price
1 2 Demand 1 2 Supply
1. 3 10 13 1 0
2. 5 8 10 4 3
3. 7 6 6 6 6
4. 10 4 3 8 9
5. 15 1 0 11 12

Assessment

Directions: Identify each item if true by writing T and if false write F before each
number.
_______1. The demand curve is a downward sloping curve.
_______2. The market demand is the compilation of all demand of the same product
in the market.
_______3. The equilibrium point is any point in the demand curve.
_______4. The demand curve is a representation of the demand schedule in a
graphical form.
_______5. The market supply can be obtained by subtracting all the supply present
in the market.
_______6. The Market equilibrium is used to identify the market price which the
buyer and the sellers both agrees to buy and sell a particular item.
_______7. The supply curve has a positive slope.
_______8. In a market under equilibrium sellers and buyers are both in a win-win
situation, wherein sellers don’t have surplus items and buyers are able to buy all
the items they needed.
_______9. The market demand can be obtained by adding all individual demand.
_______10. The Equilibrium Point is where demand and supply curve meet.

11
 Additional Activities

In this part, the teacher provides another activity to enrich the

knowledge or skill of the learner about the lesson.

Direction: Fill in the blanks to complete the statement using the Market Equilibrium
Graph below as reference

1. The Equilibrium Price where the seller was able to sell all their goods and the buyers
are able to buy all their needs is _________.
2. At price 20 how many products are the sellers willing to sell? ________
3. At price 10 how many products are buyers are willing to buy? ________
4. At what quantity demand and supply meet? ________
5. At what price is the buyer willing to buy 30,000 units of the product? ________

12