1 Supply Demand

2 Objectives  Explain who controls a market economy.  List the three main market forces.  Describe the effect of price on supply and demand.  List three factors that cause changes in demand.

3 Objectives  Describe the effect of supply and demand on price.  Describe three ways a business can increase profits.  Explain the role of the consumer in determining which products get produced.

4 Marketing Terms  demand demand  supply supply  market demand market demand  market supply market supply  law of demand law of demand  law of supply law of supply  profit motive profit motive  productivity productivity  competition competition

5 Market Forces at Work  How do the  right products get to the  right places, in the  right quantities, and at the  right prices?

6 Market Forces at Work  Three main market forces  supply and demand  profit  competition  They coordinate a market economy like an “invisible hand”  according to Scottish philosopher Adam Smith

7 Supply and Demand  Demand Demand  quantity of a product –a consumer is willing and able to buy –at a certain price

8 Supply and Demand  Supply Supply  quantity of a product –a supplier is willing to provide –at a certain price ©2007 JupiterImages Corporation

9 Supply and Demand  Individual demand  quantity of a product demanded – by an individual consumer  Market demand Market demand  sum of all individual demands –for a specific product #1 How does individual demand differ from market demand?

10 Supply and Demand  Individual supply  quantity of a product supplied –by one supplier  Market supply Market supply  sum of all individual suppliers’ supply –of a specific product #2 How does individual supply differ from market supply?

11 Effect of Price on Demand  Law of demand Law of demand  when prices fall –demand will rise  when prices rise –demand will fall  The law of demand is based on  market demand

12 Law of Demand Demand will rise When prices fall

13 Law of Demand  Consumers buy more (demand rises) when price is low.  Consumers buy less (demand falls) when price is high. #3 What do consumers do when there is a sale (prices fall)? What do consumers do when prices rise?

14 Effect of Price on Supply  Law of supply Law of supply  when prices are high –supply will rise  when prices fall –supply will fall  The law of supply is based on  market supply

15 Law of Supply Supply will rise When prices are high

16 Law of Supply  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

17 Constant Environment  The laws of supply and demand describe  what happens to supply and demand as –prices change in a constant environment  A constant environment is one in which  other factors do not change –a stable economy, no marketing campaigns, no changes in social trends #4 Is the environment ever constant?

18 Changes in Demand  Changes in demand can be caused by changes in  marketing campaigns  the economic situation  social trends  These changes can interfere with the laws of supply and demand #5 Give an example of how each of these can change demand.

19 Effect of Supply and Demand on Price  Price affects supply and demand  and gives us the laws of supply and demand  However  the level of supply and  the level of demand –interact to affect price

20 #6 What happens to the price of fruit when the supply of fruit is high, but the demand is low?

21 Effect of Supply and Demand on Price #7 What happens to the price of gas when the supply of gas is low, but demand is high (consumers want to drive)?

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

23 Effect of Rising Demand on Supply and Price  When demand is rising  and supply falls –marketers raise prices  If demand is still high  even though the price is high –suppliers will start making more basketballs –and supply will rise

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

25 Effect of Falling Demand on Supply and Price  When demand is falling  and supply rises –marketers lower prices  If demand is still low  even though the price is low –suppliers will stop making soccer balls –and the supply will fall further

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

27 Effect of Rising Supply on Price and Demand  For some items, like seasonal fruits  the supply rises rapidly –marketers lower the price to sell the fruit faster  In this situation, consumer demand rises with the lowered prices  until the fruits are out of season –the price then rises

28 Profit  Profit motive is the drive to earn more profit Profit motive #8 What is profit? Sales Costs and Expenses Profit

29 Profit  What is your profit if  your store sells $100 worth of merchandise and –your costs are $75?  Sales – Costs = Profit  $100 – $75 = $____  Your profit is $____

30 Profit  Three main ways to increase profit  decrease costs or expenses  increase productivityproductivity –the amount of product a worker produces per hour  increase sales

31 Profit  To increase profit  decrease costs  and/or decrease expenses  Think of your store with the $100 in sales  Reduce your costs to $25  What would your profit be?  Sales – Costs = Profit  $100 – $25 = $____

32 Profit  To increase profit, increase productivity  if workers produce more product per hour –you will have more products to sell  more products to sell mean that you will –have higher sales  higher sales, with the same costs and expenses –mean higher profit

33 Profit  To increase profit, increase sales  Think back to the “store” example  suppose you sold $200 worth of goods, and your costs stayed at $25  what would your profit be?  Sales – Costs = Profit  $200 – $25 = $_____  Your profit would be $_____

34 #9 What accounts for the difference in profit in columns 2 and 3? Sales – Costs = Profit Situation 1 Situation 2 Situation 3 Sales$100 $200 Costs$75$25 Profit$25$75$175

35 Competition  Competition Competition  the contest among businesses to get customers  Competition results in  better products  better quality  more services  lower prices #10 How does competition yield these results?

36 Role of the Consumer  Consumers (as a group)  have a large impact on a market economy –through the forces of supply and demand

37 Role of the Consumer  If many consumers buy a product  it will probably succeed  If few consumers buy a product  it will probably fail  Few liked or bought “New Coke”  so it failed as a product #11 Give an example of how consumers affect the success of a product.

38 Review  Who controls a market economy?  List the three main market forces.  Describe the laws of supply and demand.  What is a constant environment?  What three factors can change demand?  How is profit calculated?  How do consumers influence a market economy?

39 Glossary  competition. Contest between two or more businesses to get customers.  demand. Quantity of a specific product that a buyer is able and willing to buy at a certain price, usually at a particular time and place.  law of demand. When prices fall, demand will rise (in a constant environment). Back

40 Glossary  law of supply. When prices are high, supply will rise (in a constant environment).  market demand. Sum of all the individual demands for a specific product, for a specific time period.  market supply. Sum of all the individual suppliers’ supply of a specific product, for a specific time period. Back

41 Glossary  productivity. Amount of product a worker produces per hour (product/hour).  profit motive. Drive to earn more profit.  supply. Quantity of a specific product that a supplier is willing to supply at a certain price. Back