Marketing & Economic Principles Supply and Demand

Free Enterprise In a Free Enterprise Economy people are able to own & operate businesses in a COMPETITIVE environment with little or no government involvement The market determines PRICES through interchange of SUPPLY and DEMAND

Free Enterprise In America, which is a Free Enterprise Economy, the LAW of SUPPLY and LAW of DEMAND affects PRICING of goods and services for sale

SUPPLY PROFIT is the GOAL that motivates the behavior of SUPPLIERS The amount of goods and services PRODUCERS are willing and able to produce and sell = Supply

Law of Supply Law of Supply is the economic rule that price and quantity supplied move in the SAME direction As the PRICE of goods/services INCREASES, the quantity SUPPLIED of that good/service also INCREASES As the price FALLS, quantity SUPPLIED for the good/service also FALLS

DEMAND LOW PRICE is GOAL that motivates the behavior of CONSUMERS The amount or quantity of goods and services that CONSUMERS are willing and able to buy at various prices = Demand

Law of Demand Law of Demand is the economic rule that price and quantity supplied move in the OPPOSITE direction As the PRICE of goods/services INCREASES, the quantity DEMANDED of that good/service DECREASES As the price DECREASES, quantity DEMANDED for the good/service INCREASES

3 Conditions for Supply/Demand The Supply and Demand for goods and services fall into one of the following three (3) conditions: Surplus Shortage Equilibrium

Surpluses A SURPLUS of goods occur when SUPPLY exceeds DEMAND If the price of a product is too high or seems unreasonable to most customers, they may decide NOT to BUY it Businesses lower prices to encourage people to BUY MORE of the product (sales, or special promotions)

Surplus Example Snow Shovels It is Spring and a store has many snow shovels left over from Winter The PRICE of the snow shovels is lowered significantly because customers no longer need them The low price encourages customers to buy now in anticipation of next year

Shortage A SHORTAGE of goods occur when customer DEMAND exceeds SUPPLY If there are NOT enough items available for sale, customers are willing to pay MORE – PRICES are HIGHER

Shortage Example Grocery Store and Avocadoes Bad weather in California during avocado season Weather severely damages avocado crops Stores now have fewer avocados

Supply & Demand Together While a HIGHER price makes sellers want to SELL MORE, it makes buyers want to BUY LESS When the QUANTITY that consumers are willing and able to BUY EQUALS the quantity that producers are willing and able to SELL, the market reaches EQUILIBRIUM The equilibrium point is where BOTH producer and consumer are satisfied with the PRICE

In 1958, Wham-O, Inc. began marketing the Hula Hoop in the United States. Sales of the Hula Hoops skyrocketed during the year, in the first three months over 25 million were sold, within year over 100 million Similarly today, Silly Bandz have taken off in sales since the summer of 2008. Their small warehouse in Toledo, Ohio, has gone from shipping 20 boxes a day to about 1,500 boxes a day.

As you Watch the video be prepared to answer these questions Why does a business owner lower the price of products that are not selling quickly? When would a business owner have the incentive to raise prices? What does a higher price than before for a good or service communicate to consumers about the demand for that product? Hudsucker Proxy video clip Hula Hoops Case Study

Supply and Demand Part 1 Supply and Demand Part 2 Complete Activity

Conclusion If the PRICE of a product is TOO LOW then demand, will EXCEED supply and there will be excess demand or a _______________ of goods or services Law of Demand Law of Supply Shortage Surplus

Conclusion The LAWS of SUPPLY and DEMAND can be used to show the ____________ between producers and consumers Relationship Equilibrium Differences Similarities

Conclusion If SUPPLY of a product matches DEMAND for a product, PRICE is said to be at ___________ and the quantity supplied will match the quantity demanded Customization Equilibrium Equal Point Matching Point

Conclusion If the PRICE of a product is TOO HIGH, then supply will EXCEED the demand, and there will be excess supply or a ________________ of goods or services Law of Demand Law of Supply Shortage Surplus

Conclusion The case studies for Hula Hoops and Silly Bandz show how changes in demand for consumer products can shift tremendously over short time periods The video clip from the Hudsucker Proxy provides an example of how prices are changed in response to __________ PRICES will rise or fall based on the supply and demand for goods or services DEMAND

Conclusion The change in DEMAND for Hula Hoops initially DECREASED the price due to a lack of __________ or _____________ DEMAND sky-rocketed for Hula Hoops and led to a large __________ in the PRICE level, as consumers who wanted to buy a Hula Hoop were willing and able to pay MORE for the toy SUPPLY DEMAND DEMAND

Conclusion We saw a similar rise in DEMAND for Silly Bandz; however the price level for Silly Bandz has NOT risen Producers of Silly Bandz are sensitive to the idea of raising the price for their product; part of their marketing strategy is that their toy is a cheap alternative to video games and other children's toys that are more expensive

Conclusion Given their unwillingness to RAISE prices, continued EXCESS DEMAND can only be met by increasing the __________ or ___________ This includes substitute brands (competitors) entering into the market and gathering MARKET SHARE SUPPLY DEMAND