1. Chapter 4: Market Forces Unit 1: Marketing Basics

2. Learning Goals  Describe the three types of economic systems  Describe the three main features of a market economy  Identify the three main market forces  Explain the effect that price has on supply and demand, and that supply and demand have on price  Identify three factors that cause changes in demand  Describe three ways a business can increase profits  Explain the role of the consumer in determining which products get produced

3. Day 1 Response Journal Can you afford to buy everything you want and need? Why or why not? ***Save As Sept 23 in your Response Journal folder***

4. Scarcity  In Ch 2, you learned about economic needs and wants  These are needs and wants that can be satisfied by buying something  Unfortunately, you can’t afford to buy everything you want and need, but why not?  You do not have enough resources to meet all your needs and wants  Your resources include; Time Money Your ability to earn money

5. Scarcity  You do not have enough resources because of a problem called _______________  Scarcity is a condition in which there are not enough resources to meet needs E.g. if your school doesn’t have enough computers for everyone, you may have to share or wait your turn  Like people, countries also have a problem with scarcity  Scarce resources limit the quantity of products a nation can produce Scarcity leads to three questions; 1.What should we produce? 2.How should we produce it? 3.Who should get the products? Scarcity Video

6. Types of Economic Systems There are three basic types of economies; 1.Traditional Economy 2.Command Economy 3.Market Economy

7. 1. Traditional Economy  People in traditional economies perform economic and social activities the way they have always been done  In a traditional economy, __________ answer the economic questions based on traditions  They may still use simple or animal powered machinery  E.g. Some Inuit and Mennonite communities still maintain a traditional economy Elders

8. 2. Command Economy  In a command economy, the ______________ answers the economic questions  The decide what, how and for whom  Read the example in paragraph 4 on page 38  Everyone in the country shares the limited resources  E.g. Cuba and North Korea Government

9. 3. Market Economy  In a market economy, ______________ answer the economic questions Individuals decide;  What to produce  How to produce it  Who gets the products  Individuals control distribution because each individual is free to buy whatever he or she ants, based on price and ability to pay  E.g. Canada, USA and Europe Individuals

10. Market Economies The three main features of a market economy are; 1.Private Property 2.Economic Freedom 3.Market Forces

11. 1. Private Property  A market economy is based on the right of individuals to own land and products  Ownership means that each person has the right to do whatever he or she wants with his or her property  As long as it isn’t illegal  Read the example in paragraph 2 on page 40

12. 2. Economic Freedom  Individuals make their own economic decisions  Individuals are free to control their own labour  Anyone is permitted to start their own business  Each person is free to decided what work he or she will do and which companies they will work for

13. 3. Market Forces  Even though individuals are free to make economic decisions, market forces ____________ those decisions  The three major market forces are; 1.Supply & Demand 2.Profit 3.Competition  Read the Market Forces at Work section of the text, found on page 41 Influence

14. Mixed Economies  In reality, there are no pure command or pure market economies  Most modern economies are mixed economies  In a mixed economy, both the government and individuals are involved in making economic decisions  It would be fair to say that Canada and the USA have mixed economies  The government regulates businesses to some degree – e.g. they ensure businesses pay workers minimum wage  The government also protects Canadians – e.g. the provide us with universal health care

15. Day 1 Assigned Work Students please complete the following;  K & U Questions #1, 2 and 3 on page 48  Application Question #1 on page 48 *** Save As Ch 4 Day 1 in your U1 folder***

16. Day 2 Response Journal What do you believe are the reasons why certain items, in store or online, get marked down by 50% or more? Are you more likely to buy an item that is on sale? ***Save As Sept 24 in your Response Journal folder***

17. 1. Supply and Demand  _______________ is the quantity of a product consumers are willing and able to buy at a certain price  _______________ is the quantity of a product suppliers are willing and able to provide at a certain price There are two ways to think about supply and demand; 1.Individual 2.Market Demand Supply

18. 1. Supply and Demand  ______________ demand is the quantity of a product demanded by an individual consumer  ______________ demand is the sum of all individual demands for a specific product  ______________ supply is the quantity of a product supplied by one supplier  ______________ supply is the sum of all individual suppliers’ supply of a specific product  Typically, when someone refers to supply and demand they are referring to Market Supply and Demand Individual Market Individual Market

19. Effect of Price on Supply and Demand  The laws of supply and demand tell us what happens to supply and demand as prices change  These laws apply to situations where other factors do not change  When other factors do not change, we call this a _____________________________ Constant Environment

20. Effect of Price on Demand In a constant environment, the Law of Demand says that;  When prices fall, demand will rise  When prices rise, demand will fall That is …  Consumers buy more (demand rises) when price is low  Consumers buy less (demand falls) when price is high

21. Law of Demand Demand will rise When prices fall

22. Effect of Price on Supply In a constant environment, the Law of Supply says that;  When prices are high, supply will rise  When prices fall, supply will fall That is …  Manufacturers will supply more of a product when its price is high because they will make more profit  Manufacturers will supply less of a product when the price falls because they will make less profit

23. Law of Supply Supply will rise When prices are high

24. Summary Chart Effect of Price on Supply and Demand Price Level Effect on Demand Effect on Supply HighFallsRises LowRisesFalls

25. Changes in Demand  In reality, the environment is rarely constant Changes in demand can be caused by changes in;  Marketing campaigns  The economy  Social trends

26. Changes in Demand  One of the major roles of marketing is to increase demand  E.g. TV advertisements for a certain toy during the Christmas season can result in increased demand for that toy  When the economy is doing well, consumers have more money and as a result the demand for many products will increase  The opposite is true when the economy is struggling  Changes in society effect demand  E.g. The increase in the number of single person households resulted in an increased demand for pre- packaged, single portion convenient food

27. Effect of Supply and Demand on Price  Price is one of the four Ps  Many factors determine the price that marketers set for a given product  One of those factors is the interaction of supply and demand  See the basketball, soccer ball and strawberry examples on the next several slides

28. Effect of Rising Demand on Supply and Price Basketball Example  If demand for basketballs begins to rise, supply will fall  Therefore, marketers will __________ the price  If demand remains high even after the price has been raised, suppliers will start making more basketballs and supply will rise Raise

29. Effect of Rising Demand on Supply and Price Demand Rises Consumers start buying lots of basketballs. Supply Falls Suppliers can’t keep up with the rapid sale of basketballs. Price Rises Suppliers raise the price of basketballs. Consumers pay the higher price.

30. Effect of Falling Demand on Supply and Price Soccer Ball Example  If demand for soccer balls begins to fall, supply will rise  Therefore, marketers will _________ the price  If demand remains low even after the price is lowered, suppliers will stop making soccer balls (for a while) and the supply will fall further Lower

31. Effect of Falling Demand on Supply and Price Demand Falls Consumers are not buying soccer balls. Supply Rises Soccer balls pile up in the suppliers’ warehouses. Price Falls Suppliers lower the price to sell the soccer balls.

32. Effect of Rising Supply on Price and Demand Strawberry Example  For some items, like seasonal fruits, the supply rises rapidly in the spring and summer, so marketers will __________ the price during these months to sell the fruit faster  In this situation, consumer demand rises with the lowered prices until the fruits are out of season  The price for seasonal fruits, will then rise again Lower

33. Effect of Rising Supply on Price and Demand Supply Rises Strawberries are in season. The berries are spoiling before consumers purchase them. Price Falls The suppliers want to sell their product before it spoils. They lower the price of strawberries. Demand Rises The reduction in price increases consumers’ demand for strawberries.

34. Summary Chart Effect of Supply & Demand on Price Level of Demand Level of Supply Effect on Price HighLowRise High No Effect LowHighFalls Low No Effect

35. Day 2 Assigned Work Students please complete the following;  Watch the Supply & Demand VideoSupply & Demand Video  How Change Affects Supply and Demand Worksheet (provided)  K & U Questions #7 – 10 on page 48 *** Save As Ch 4 Day 2 in your U1 folder***

36. Day 3 Response Journal Has technology changed the way companies conduct business? Explain. In your opinion, has technology changed businesses for better or worse? Explain. ***Save As Sept 25 in your Response Journal folder***

37. 2. Profit  Profit is another powerful force in a market economy  Profit is the money left over after all business expenses are paid Profit = Sales – Expenses & Costs  The ______________ is the drive to earn more profit Profit Motive

38. 2. Profit  In a pure market economy, the __________________ keeps the profits  In a pure command economy, the _______________ keeps the profits  The profit motive does not operate in a command economy, because the government keeps the profits  In a mixed economy, the business owner get to keep most of the profits, but pays a portion of their profits to the government in the form of _________ Business Owner Government Taxes

39. 2. Profit What is your profit if you own a store that sells $100 worth of merchandise and has costs of $75? Sales – Costs/Expenses = Profit $100 –$75 = $25

40. 2. Profit  Businesses in a market or mixed economy are always looking for ways to increase profits because of the profit motive There are three main ways to increase profit; 1.Decrease costs/expenses 2.Increase productivity Productivity is the amount of product a worker produces per hour 3.Increase sales

41. Decrease Costs/Expenses  To increase profit, a business can lower their costs/expenses  Costs and expenses include things like rent, raw materials, machinery maintenance, etc. For example, what would happen to profit if the store you own still has $100 in sales, but you are able to reduce your costs to $25? Sales – Costs = Profit $100 – $25= $75 Your profit now increases to $75.

42. Increase Productivity  To increase profit, a business can increase productivity  If workers produce more product per hour, you will have more products to sell  More products to sell means that you will have higher sales  Higher sales, with the same costs and expenses, mean higher profit  Read the example in paragraph 5 on page 45

43. Increase Productivity A business can increase productivity in two ways; 1.Increase Efficiency One way to increase efficiency is through _________________ Henry Ford used the assembly line and specialization to increase efficiency in car manufacturing Read the example in paragraph 2 on page 46 2.Use New Technology New technology, such as computers, can enable workers to perform their jobs faster than before Specialization

44. Increase Sales  To increase profit, a business can increase sales  Marketing can develop programs to gain new customers, to get current customers to buy more or to find new markets For example, what would happen to profit if the store you own sold $200 worth of goods, and your costs stayed at $25? Sales – Costs = Profit $200 – $25 = $175 Your profit now increases to $175.

45. 3. Competition  ________________ is the contest between two or more businesses to get customers  In order for businesses to compete successfully, they work hard to meet customer needs and wants Competition results in …  Better products  Better quality  More services  Lower prices Competition

46. Role of the Consumer  Consumers (as a group) have a large impact on a market economy through the forces of supply and demand  When a large group want and buy a product, the demand for the product goes up  When a large group decides they do not want a product, the demand for a product goes down

47. Role of the Consumer  If many consumers buy a product, it will probably succeed  If few consumers buy a product, it will probably fail  Read the example in paragraph 4 on page 47

48. Day 3 Assigned Work Students please complete the following;  K & U Questions #11, 12 & 13 on page 48  Application Question #7 on page 48 *** Save As Ch 4 Day 3 in your U1 folder***