INTERNACIONAL COLEGIO DE TECNOLOGIA

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DATU PANAS, BUUG, ZAMBOANGA SIBUGAY
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Quarter 1 - Module 1:
Week 5-6
Utilizing Applied Economics

NAME: ______________________________________________________
GRADE & TRACK/STRAND: __________________________________
ADDRESS: __________________________________________________
CONTACT NUMBER: ________________________________________

ERNESTO M . OGARIO JR
Teacher
 2 Utilizing Applied Economics

Have you ever asked who decides on the prices of the goods you buy?
For many people, the answer is easy. They think the government decides how
high or low prices should be. But this is not always true. For example, the
government may only regulate the prices of rice, gasoline, and apartment rent.
But the prices of most goods are determined by market price.

A market price is the price determined only by demand and supply. It also
means that the government had little say about that price. But what if the
government decided on a price that is higher than the market price? Who would
be affected? How will this affect the demand and supply for that good or service?

In such a case, the sellers will be badly affected. Since people want lower-
priced goods, they will buy less. That means if the price goes up, they will not
buy as much. The sellers will have a lot of goods that people are not buying.

What about if the government mandate the sell of goods or services at a

price lower than the market price? In this case, remember that people want as
much profit as possible. If the government decides on a price lower than what
the market alone would have allowed, will the sellers be happy? The answer is
no. If people have to pay the sellers less for their goods, the sellers will get less
money.

In general, prices are decided upon by demand and supply. In this chapter,
we are going to study the law of supply and demand. It will also discuss the
price structure and the role of government in the process.

Lesson 2.1 Application of Demand and Supply

What I Need to Know

In an economy where prices are continuously rising, people have always

wondered what factors cause prices to fluctuate. The core of this lesson aims
to show that demand and supply are the main forces that cause prices to
increase or decrease. The lesson also tries to explain why an increase in the
price of a commodity will make consumers want to buy less of it and producers
want to sell more and why a price decrease will cause the opposite reaction.
 What’s New

Activity 1.2.1. Picture Analysis

Directions: Analyze the picture in answering the questions below:

1. How do you determine the prices of goods and services?

2. What will happen if the prices of basic commodities will keep on increasing?

3. Is there any effective way of keeping the prices of basic commodities at levels
that are accessible to the masses?
 What Is It

The Meaning of Demand

Demand is the schedule of various quantities of commodities which
buyers are willing to purchase at various prices in a given time and place. In
simple terms, demand means that someone wants something. In economics, it
also means a group people want to buy certain goods or services.
Demand tells us what people want. It also tells us what they can buy at a
certain time and place. Because it involves buying, it also involves at what price
people can buy it or are willing to buy it.
Determinants of Demand
1. Income. The amount of money people earns affects how much or how little
they buy. For example, the factory worker earns P10, 000 every month while
the business man earns P30,000. This means the factory worker has less
money. He can buy less than the businessman. However, when the income of
the factory worker goes up, he can buy more. Still, this will not mean that he
can already buy as much as the businessman can. But if the income of the
businessman goes down, he can buy less.
This means that a change in income leads to a change in the demand for
goods and services. More money means more demand. Less money means
less demand.
2. Population. More people means more demand for goods and services. That
is why, we can observe that there are more buyers in the city stores than in the
barrio stores. Conversely, less population means less demand for goods and
services. Obviously, business is poor in the rural areas compared to business
in the urban areas.
3. Tastes and preferences. Demand for goods and services increases when
people like or prefer them. Such tastes or preferences are greatly influenced by
advertisement or fashion. On the other hand, if a certain product is out of
fashion, the demand for it decreases.
4. Price Expectations. When people find out that prices are about to increase,
they buy more of these goods before the price changes. When people find out
that prices are about to go down, they will not demand these goods as much.
Why do people act like this? It is because they want to use their money
wisely. They want to economize. It means they want to spend properly to buy
what they want or need at the best possible price. They want to save money
even after buying things.
5. Price of related goods. When the price of a certain good increases, people
tend to buy substitute products. For example, if the price of Colgate increases,
consumers buy less of Colgate and more of the close substitute like Close-up
or Hapee. This means, the demand for Colgate decreases while the demand
for substitutes increases. This means, if the price of one good increases, the
demand for the other good increases. For substitutes then, price and quantity
demanded are directly related.

Law of Demand
The law of demand may be stated as “the quantity of a commodity which
buyers will buy at a given time and place will vary inversely with the price.” This
means that as price increases, quantity demanded decreases, and as price
decreases, quantity demanded increases other things are constant.
There are two ways of explaining why people buy more or less of a good
depending on price:
1. Income effect. At lower prices, an individual has a greater purchasing power.
This means he, can buy more goods and services. But at higher prices,
naturally, he can buy less.
2. Substitute effect. Consumers tend to buy goods with lower prices. In case
the price of a product that they are buying increases, they look for substitutes
whose prices are lower. Thus, the demand for higher priced goods will decrease.

The Ceteris Paribus Assumption

The law of demand states that as price increases, quantity demanded

decreases, and as price decreases, quantity demanded increases. Such theory
is true if we apply the Ceteris Paribus assumption wherein it assumes that “all
other things equal or constant.” Meaning, the determinants of demand are
constant and are not considered as factors that will affect demand in the market.
Thus, the law of demand, using the Ceteris Paribus, can be restated as
“assuming that the determinants of demand are constant, price and
quantity demanded are inversely proportional to each other.”

However, if the determinants of demand are considered major factors or

greatly affects the demand in the market, then, the Ceteris Paribus assumption
is dropped.

Validity of the Law of Demand

As price increases, quantity demanded decreases;
As price decreases, quantity demanded increase.
A demand schedule reflects the quantities of goods and services
demanded at different prices. To understand this fully, let us analyze a
hypothetical demand schedule of brand X in the market as shown in Table 1
 Table 1. Hypothetical Demand Schedule of B

From the table, it is shown that an

individual would tend to buy more when
its price is low than when the price is
high.
At a price of P35.00, quantity demanded
by the consumers is 5 while a decrease
of price to P5.00 increases the quantity

PRICE QUANTITY DEMANDED

5 35
10 30
15 25
20 20
25 15
30 10
35 5

The demand schedule shown in Table 1 can also be understood through

graphical illustration known as the demand curve. In many instances, it is more
convenient to express the relation between prices and quantity demanded by
means of a demand curve. Figure 1 shows the translation of Table 1 into a
graphical illustration.

Figure 1. Graphical Illustration of a Demand Curve

In Figure 1, price is presented on the

vertical axis and quantity demanded on
the horizontal axis. The points can be
connected in a continuous curve. We
label our demand curve with D, which
means demand, to indicate that it is the
entire demand schedule.
It can be noted that the demand
curve is sloping down. It shows that price
and quantity demanded are inversely

proportional. This inverse relationship between prices and quantity demanded

depicts the law of demand.
The Meaning of Supply
Supply is the schedule of various quantities of commodities which
producers are willing and able to produce and offer at various prices in a given
time and place. In other words, supply is the amount of goods and services
available for sale at given prices in a given period of time and place. Supply
implies the ability and willingness of sellers to sell.

Determinants of Supply
1. Technology. This refers to the method of production or how something is
produced. Having modern technology means being able to produce more. This
means more supply. If producers had to rely on old technology which uses
animals instead of machines, production would be slower. Better technology
means more supply produced and less cost of producing these goods.
2. Cost of production. This refers to the things a producer has to spend on to
keep making goods and services. This includes: raw materials, laborers, bank
loan interests, taxes, and land or building rent. An increase in cost of production
makes it harder for the producer because he or she has to pay more to keep
producing. This is why when the cost of producing goes up, the supply of goods
most likely goes down.
The producer, given a higher cost of production, cannot produce as much.
Wage is a cost of production. Think of a factory. A factory needs workers. The
owner of the factory needs to pay the workers so that they will help him or her
make goods. Wage is a cost that the owner has to pay. It is the cost of making
something. This means that if the owner has to pay more wage, the cost of
production goes up. This means supply of the goods will go down.
For example, businessmen don’t want to sell more goods if they are not
sure that they will get as much money. If they have to pay workers more, that
means less of their profit will stay with the owners. They have to give more of
what they earn to the workers. What if sellers just increase price when cost of
production goes up? Won’t this help them get more money? It might, but not all
the time. Remember that higher prices mean less people will buy. This means
that if the cost of production doesn’t go down soon, sellers will continue losing
money. They might have to stop producing completely.
3. Number of sellers. More sellers or more factories means an increase in
supply. On the other hand, less sellers or factories means less supply.
4. Prices of other goods. Since a price increase means less demand, a
producer may choose to produce something else to continue gaining profit or
to have more profit. Let us say, the price of rice goes up. If so, then a farmer
may choose to produce more corn instead because he knows that less people
will buy rice from him.
5. Price expectations. If producers expect prices to rise very soon, they usually
keep their goods and then release them in the market when the prices are
already high. Sadly, this leads producers to keeping their supply of goods until
prices increase. This is called artificial shortage. This is usually what happens
when the government says that the prices of some basic goods are about to go
up.
Some basic goods are: gasoline, rice, milk or cooking oil. What about if
producers expect a price decrease? In this case, they will lessen production.
Still, there are some exceptions, like farmers. They cannot lessen their crop
supply especially when their crops are already growing. On the other hand,
many factories increase the number of their goods due to expected price
increase.
6. Taxes and Subsidies. Certain taxes increase the cost of production. Higher
taxes discourage production because it reduces the earnings of businessmen.
That is why the government extends tax exemptions to some new and
necessary industries to stimulate their growth. Similarly, tax incentives are
granted to foreign investors in order to increase foreign investment in the
Philippines. This will result to more goods.
In the case of subsidies, there is financial assistance to producers. Clearly,
subsidies reduce the cost of production. This induces businessmen to produce
more.
The Law of Supply
The law of supply states that the quantity offered for sale will vary directly
with price. This means that as price increases quantity supplied also increases;
and as price decreases, quantity supplied also decreases. This direct
relationship between price and quantity supplied is the law of supply. Producers
are willing and able to produce and offer more goods at a higher price than at
a lower price. Obviously, sellers offer more goods at higher prices because they
make more profits. Such behavior of sellers or producers is a natural inclination.
No businessman is willing to produce goods if he makes no profit.

The Ceteris Paribus Assumption of Supply

The law of supply is only correct if we apply the assumption of ceteris
paribus. This means the law of supply is valid if the determinants of supply like
cost of production, technology, number of sellers and so forth, are held constant.

Validity of the Law of Supply

As price increases, quantity supply also increases,

As price decreases, quantity supply also decreases

The supply schedule shows the different quantities that are offered for sale
at various prices. The supply schedule may reflect the individual schedule of
only one producer or the market schedule showing the aggregate supply of a
group of sellers or producers. Table 2 gives you an idea of a supply schedule.

Table 2 indicates that a seller offers a big quantity of brand Y in the market
if the price is high and likewise, sells only a few when the price is low.
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Table 2. Hypothetical Supply Schedule of Brand Y
PRIC QUANTITY
E SUPPLIED
5 5

10 10

15 15

20 20

25 25

30 30
35 35

The supply schedule as shown in Table 2 can also be illustrated in

graphical form known as the supply curve. This is shown in Figure 2.

Figure 2. Graphical Illustration of the Supply Curve

It can be noted that the supply

curve has an upward slope. It
shows that price and quantity
supplied are proportional to each
other. This kind of relationship
depicts the law of supply. We label
our supply curve with S to indicate
the entire supply schedule.

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 What’s More

Activity 1.2.2. Show Me The Plot 1

Directions: Plot the following hypothetical demand schedule of pork and supply
schedule of bangus in the market in a graphing paper and explain each graph.

Price of Beef (Per Kilo) Quantity Demanded (In Kilos)

P 150.00 90
P 140.00 100
P 100.00 130
P 75.00 150
P 60.00 170
P 40.00 200

Price of Bangus (Per Kilo) Quantity Supplied (In Thousands)

P 120.00 700
P 100.00 650
P 90.00 600
P 75.00 500
P 60.00 400
P 50.00 300

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 What I have Learned

Activity 1.2.3. Sum Me UP

Based on the lesson, I have realized that _

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Lesson 2.2 Demand and Supply in Relation to the
Prices of Basic Commodities

What’s In

We have seen that consumers demand different amounts of goods and

services as a function of their prices. Similarly, producers willingly supply
different amounts of goods and services depending on their prices. What
happens when suppliers and consumers meet?

In this lesson, we will illustrate the effect of combining supply and demand.
We will also determine how the forces of demand and supply operate through
the market to produce an equilibrium price and equilibrium quantity.

What’s New

Activity 1.2.4. Show Me The Plot 2

Directions: Plot the following hypothetical market demand and supply

schedules for commodity Y and explain the graph. Do this in a graphing paper.

Quantity Supplied Price Quantity Demanded

5 P 6.00 9
6 P 7.00 8
7 P 8.00 7
8 P 9.00 6
9 P10.00 5
10 P11.00 4

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 What Is It

Alfred Marshall, a British economist, introduced a kind of pricing scheme

by combining the law of demand and the law of supply. With this combination,
an equilibrium price and equilibrium quantity is formulated. This is known as the
market equilibrium.

Market Equilibrium

From a separate discussion of demand and supply, we now proceed with

reconciling the two. The meeting of supply and demand results to what is
referred to as “market equilibrium”. As earlier said the market referred to here
is a situation where buyers and sellers meet, while equilibrium is generally
understood as a “state of balance”.

Equilibrium

Market equilibrium generally pertains to a balance that exists when

quantity demanded equals quantity supplied. Market equilibrium is the general
agreement of the buyer and the seller in the exchange of goods and services
at a particular quantity. At equilibrium point, there are always two sides of the
story, the side of buyer and that of the seller.

For instance, given the price of P30.00 the buyer is willing to purchase 150
units. On the seller side, he is willing to sell the quantity of 150 units at a price
of P30.00. This simple illustration simply shows that the buyer and seller agree
at one particular price and quantity, that is P30.00 and 150 units. This is the
main concept of equilibrium: that there is a balance between price and quantity
of goods bought by consumers and sold by sellers in the market.

Table 3. Supply and Demand Schedules Indicating the Equilibrium Price

and Equilibrium Quantity
Quantity Supplied Price Quantity Demanded
50 P 10.00 250
100 P 20.00 200
150 P 30.00 150
200 P 40.00 100
250 P 50.00 50

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Equilibrium Market Price

Equilibrium market price is the price agreed by the seller to offer its good
or service for sale and for the buyer to pay for it. Specifically, it is the price at
which quantity demanded of a good is exactly equal to quantity supplied of the
same good.

Let us work through the supply and demand schedules in Table 3 to see
how supply and demand determine market equilibrium. To find the market price
and quantity, we find a price at which the amount desired to be bought and sold
just matches. If we try a price of P10.00, a producer would like to sell 50 units
while consumers want to buy 250 units. The quantity demanded exceeds
quantity supplied. At price P40.00, a quick look shows that quantity supplied
which is 200 units exceeds the quantity demanded which is 100 units.

We could try another process, but we can easily see that the equilibrium
price is P30.00. At P30.00, consumers’ desired demand of 150 units is equal
with the desired supply which is also 150 units. This denotes that supply and
demand orders are filled, and consumers and suppliers are satisfied.

In Figure 3, an illustration through graph of demand and supply can be

seen.

Figure 3. Equilibrium Price and Equilibrium Quantity Established By Interaction

Between Demand and Supply

What happens when there is market disequilibrium?

When there is market disequilibrium, two conditions may happen: a
surplus or a shortage may occur as shown in Figure 3.
Surplus is a condition in the market where the quantity supplied is more
than the quantity demanded. When there is a surplus, the tendency is for sellers
to lower market prices in order for the goods and services to be easily disposed
from the market. This means that there is a downward pressure to price when
there is a surplus in order to restore equilibrium in the market. This is depicted

3
in Figure 3 by the arrow from point b going down to the equilibrium point.
Generally, a surplus happens when there are more products sold in the
market by sellers but few products are bought by consumers. This is because
the quantity of goods that buyers are willing to buy at a given price is less than
the quantity of goods that sellers are willing to sell at the same price.
Shortage is basically a condition in the market in which quantity
demanded is higher than quantity supplied at a given price. As you may have
observed in Figure 3, a shortage exists below the equilibrium point. In particular,
a shortage happens when quantity demanded is greater than quantity supplied
at a given price.
When there is a shortage of goods and services in the market, there is an
upward pressure on prices to restore equilibrium in the market. In this
particular situation, it is the consumers that will influence that price to go up
since they will bid up prices in order for them to acquire the goods or services
that are in short supply. For as long as there is disequilibrium in the market,
prices will still go up until such situation is normalized.

The Law of Demand and Supply

When supply is greater than demand, price decreases;

When demand is greater than supply, price increases;
When supply is equal to demand, price remains constant.

This constant price is the equilibrium or market price. This means that
buyers and sellers agree on that price.

Price Controls

When the market is experiencing a surplus, there is a possibility that

producers will lose. Conversely, when the market is encountering shortage,
there is likelihood that consumers will be abused. What happens if
disequilibrium in the market persists for a longer period of time? If this happens,
the government may intervene by imposing price controls.

Price control is the specification by the government of minimum or

maximum prices for certain goods and services, when the government
considers it disadvantageous to the producer or consumer.

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Two Types of Price controls:

1. Floor Price - is the legal minimum price imposed by the government on

certain goods and services? The setting of a floor price is undertaken by the
government if a surplus in the economy persists.

Generally, this policy is resorted to in order to prevent bigger losses on the

part of the producers. Floor price is a form of assistance to producers by the
government for them to survive in their business.

2. Price Ceiling - is the legal maximum price imposed by the government? In

most cases, a price ceiling is utilized by the government if there is a persistent
shortage of goods in the economy. The government regularly monitors the
market and imposes a maximum price on commodities, which is to be strictly
followed by producers and sellers.

A price ceiling therefore is imposed by the government to protect

consumers from abusive producers or sellers who take advantage of the
situation. This is usually done by the government after the occurrence of a
calamity like typhoon or severe flooding.

Market Equilibrium: A Mathematical Approach

In the previous discussions, we have discussed and presented market

equilibrium through graphical presentation. In this section, we will try to apply a
mathematical equation in determining the price and quantity equilibrium in the
market.
Equation:

Demand equation: QD = a - b (P) (1)

Supply equation: QS = a + b (P) (2)

Equilibrium condition: QD = QS (3)

Take note that in the said equations, there are three unknown variables: QD,
QS, and P where QD is quantity demanded, QS is quantity supplied, and P is
price. Moreover, the parameter in equations (1) and (2) is a and the coefficient
is b. Given these equations, we can now determine the equilibrium price and
quantity.

Example:

Look for the PE and QE given the following information:

QD = 68 - 6P
QS = 33 + 10P

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Solving the problem, we can simply state our equilibrium equation as:

a - b(P) = a + b(P)

Substituting our values, we have:

68 - 6(P) = 33 + 10(P)

Solving for the unknown (P), we simply group like terms, thus

68 - 33 = 10P + 6P
35 = 16P

Dividing both sides by 16, we get

P = 2.19

Now we have determined the price of the goods. The next problem for us
is to determine the equilibrium quantity. Since we already know the price, all we
have to do is to substitute the value of the price to our previous equations, thus:

68 - 6 (2.19) = 33 + 10 (2.19)

Solving the equation, our QD = QS is equal to 54.8 or we can set the value
in the whole number. Therefore, the equilibrium quantity is equal to 55 units
and the equilibrium price is P2.19.

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 What’s More

Activity 1.2.5. Find My Match

Directions: Match the items in Column A with Column B.

Column A Column B
1. General agreement of the buyer and a. Floor price
the seller in the exchange of goods and
services at a particular quantity.
2. The legal minimum price imposed by b. Price control
the government on certain goods and
services.
3. A condition in the market where the c. Adam Smith
quantity supplied is more than the
quantity demanded.
4. British economist who introduced a d. Market equilibrium
kind of pricing scheme by combining the
law of demand and the law of supply.
5. The quantity of a commodity which e. Shortage
buyers will buy at a given time and place
will vary inversely with the price.
6. The legal maximum price imposed by f. Surplus
the government.
7. This means that as price increases g. Alfred Marshall
quantity supplied also increases; and as
price decreases, quantity supplied also
decreases.
8. The specification by the government h. Price ceiling
of minimum or maximum prices for
certain goods and services.
9. Basically a condition in the market in i. Demand
which quantity demanded is higher than
quantity supplied at a given price.
10. It means all other things equal or j. Ceteris Paribus
constant.
k. Law of Supply

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Activity 1.2.6. Show Me The Plot 3

Directions: Plot the following hypothetical market demand and supply

schedules for commodity X in a graphing paper.

Quantity Demanded Price Quantity Supplied

(Units) (Peso) (Units)
150 P 30.00 900
300 25.00 800
350 20.00 700
600 15.00 600
800 10.00 400
1000 5.00 200

1. What is the equilibrium price? Equilibrium quantity?

What I have Learned

Activity 1.2.7. Sum Me UP

Based on the lesson, I have realized that the law of supply and demand
states _

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Lesson 2.3 Market Structures

What’s In

After looking at the basic principles of demand and supply, it will also be
helpful to learn about the market structures in which sellers can operate. Each
structure will be described in terms of the nature of the product being sold, the
number of buyers and sellers in the market, and the ease of entering or exiting
the market.

In this lesson, you will be able to explain the market structures (perfect
competition, monopoly, oligopoly, and monopolistic competition).

What’s New

Activity 1.2.8. Picture Analysis

Directions: Describe or give your own idea about the given pictures.

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 What Is It

Market structure refers to the competitive environment in which buyers

and sellers operate. Competition is rivalry among various sellers in the market.
As a student, you are familiar with the word competition. You are exposed to
competition in school: spelling bees, quiz bees, and sports fests. On the
television, you watch beautiful girls from all over the world compete for the Miss
Universe or Miss World title. You see how the various teams of the PBA
compete to win the championship.

The market is a situation of diffused, impersonal competition among

sellers who compete to sell their goods and among buyers who use their
purchasing power to acquire the available goods in the market.

There are varying degrees of competition in the market depending on

the following factors:

 Number and size of buyers and sellers

 Similarity or type of product bought and sold
 Degree of mobility of resources
 Entry and exit of firms and input owners
 Degree of knowledge of economic agents regarding prices,
costs, demand, and supply conditions

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Market Models Defined

1. Perfect Competition - the market has a lot of independent sellers. These

independent sellers offer the same goods. That is why they have to compete
against each other. Each seller is trying to get more profit than the others.

2. Monopoly - exists when a single firm that sells in the market has no close
substitutes. The existence of a monopoly depends on how easy it is for
consumers to substitute the products for those of other sellers.

3. Monopolistic Competition - this means there is almost a large number of

small sellers selling goods which are similar but not the same.

4. Oligopoly - is a market dominated by a small number of strategically

interacting firms. Few sellers account for most of the total production since
barriers to free entry make it difficult for new firms to enter.

Characteristics of Market Models

Perfect Competition

1. There is a large number of independent sellers.

2. Products are all the same. Because they are the same, they are
homogeneous. Examples are farm goods like rice, corn, or fruits.

3. No one seller and no one buyer can cause a change in the price of a good.

There are too many sellers with the same good. If one seller decreases
his or her supply a lot, this will still not change the total supply of everyone else
in the market. The market price of the goods will stay the same.

At the same time, if one seller sells his or her goods at a lower price than
anyone else, many people will buy from him or her right away. If he or she sells
at a higher price than anyone else, he or she will not sell his goods. The rise or
fall of market price depends on total demand or total supply, not on a single
buyer or seller.

4. It is easy for new firms to enter the market. It is also easy for firms that are
already there to leave the market. For example, a vegetable vendor is free to
sell in the market. He or she only pays the market fee. If she no longer wants
to sell, she can simply leave the market.

5. There is no competition that does not include prices. Competition without

price means advertising or promotion, like commercials. But there is no need
for these because the goods being sold are all the same.

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Monopoly
1. There is only one producer or seller.
2. Not all the products are exactly the same. This is because there are no close
substitutes for them. Some firms in real life which are pure monopolies are the
following: MERALCO, PLDT, and MWSS.
3. The monopolist chooses the price. Since he or she is the only one selling the
goods, he or she can lessen the output to make the price higher. He or she can
also increase supply if this will increase his profit.
4. It is very hard for new firms to enter the market. This is because there are
already other firms who know how to work in the market better.
If there is a monopolist, this firm is very powerful in the market. There are
also natural monopolies because there are some things like electricity or water
that cannot be sold by more than one company.
5. There may or may not be a lot of promotion of the goods sold by the
monopolist. By promotion we mean billboards or commercials.

Since no one else sells the goods sold by the monopolist, there is no need
to tell people to buy from a particular company. In a market with a monopoly,
the people can only buy from the monopolist.

Monopolistic Competition
1. There are many sellers acting independently. This means at least 100 sellers.
In terms of competition, this means a thousand or more sellers.
2. Products are not all the same. The products look different from each other.
They are also sold in different places. There are different commercials and
billboards for them.
Examples are banks, books, medicine, and gasoline stations
3. There is a limited control of price. Some sellers can decrease or increase
their prices a little. This is because their products are different.
For example, not all brands of soap have the same price
4. New firms do not have a very hard time entering the market. Still, they have
a harder time than firms in markets with pure competition. Why?
This is because they need more capital. There is also more competition
because their products have to be better. They also need to promote it better
so people will choose their goods instead of others.

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5. There is more non-price competition. Non-price here means firms have to try
to have better services and better places to sell. Their goods also need to look
better so that people will choose to buy from them instead of from other firms.

Oligopoly
1. Only some firms are powerful in the market. Each firm produces a big part of
the total output of the industry.
2. Products are either the same or different. Raw materials like cement or steel
are all the same. Finished goods like typewriters or cars are different from one
another.
3. The producers agree on a price depending on what each of them wants. The
biggest among the sellers is called the price leader.
4. It is hard for new firms to enter the market. They need a lot of capital and
they need to produce a large number of goods. It is hard to beat the firms that
have been in the market longer because these firms know better. But new firms
can still enter the market.
5. There is a lot of product promotion among those who make different goods.
In the case of producers who all sell the same goods, they have to promote
themselves well.

Determinants of Market Structure

1. Government laws and policies. In some industries, the government controls
how competitive firms can be.
This is for the good of the buyers and the economy. For example, in some
industries that sell water or electricity, only one firm is allowed to sell each
service or good.
For transportation like public buses or communication like telephone lines,
the government will let only one or two firms in particular places in the country.
The government also makes sure that the monopolies don’t abuse their power.
2. Technology. Because they have been monopolies for a long time, a lot of
firms have become very rich. This is because they did not have to try and beat
other firms to earn more profit.
But some new firms get hold of modern machines which help them
produce more goods and better goods compared to the monopolies. Because
of this, monopolies become oligopolies or monopolistic competition happens.
For example, abaca was once the best choice to use when making paper,
ropes, and fishing nets. But now, plastic is also used to make ropes, for example.
The abaca industry is no longer a monopoly.

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3. Business policies and practices. New firms might be scared of big firms. Also,
new firms do not have as much input to use, unlike the big firms. Sometimes
the big firms will even work together. This makes it harder for new firms to earn
profit. The new firms can even buy the new firms instead of letting them work
in the market.
4. Economic freedom. Being free in this sense can mean having things of your
own. It means being able to sell what you want as long as no one gets hurt.
Having economic freedom may also mean firms can compete with one
another. In some cases, the firms try very hard to beat one another. Only a few
firms stay in the market.
In this case, a single seller or only a few can help in saying what the price
of goods should be. They can also say how much should be made.

What’s More

Activity 1.2.9 Word Finder

Directions: Unscramble the words. Write down your answers in the box.

1. GOLPYOLIO

2. MYOONOPL

3. COMTINOPEIT

4. LTICONPMOOSI

5. KTERAM

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 What Have I Learned

Activity 1.2.10 Sum Me UP

Based on the lesson, I have realized that market structures

What I Can Do

Activity 1.2.11. I Can Do This!

Give one example of an industry/company in the Philippines and

identify what market structure the company belongs to. Explain.

Good Luck !!!