1.5.1 Market demand and supply Whole class activity If you were able to buy the latest films before their release at the cinema how many would you buy per month at various prices? Ask each member of the class how many DVDs they would buy at the following prices: £20, £15, £10, £5 Draw a diagram showing the demand for DVDs at every given price. Plot quantity demanded on the x axis and price on the y-axis. What happens to demand as price increases? Wanna buy DVD? 1.5.1 Market demand and supply 1.5.1 Market demand and supply

Relationship between price and demand The prices of goods and services are determined by the relationship between demand and supply As price increases demand from customers falls and vice versa. There is an inverse relationship between price and demand As price increases suppliers wish to sell more and vice versa. This is because they make a higher profit margin per unit. There is a positive relationship between price and supply Commodity markets are where raw or primary materials such as wheat are bought and sold Price Quantity Supply Demand The point at which the demand and supply curves (lines) meet is called the market price 1.5.1 Market demand and supply

Relationship between price and demand Whole class activity Draw a tally chart on the board to show price and quantity Nominate one person in the class to be the auctioneer Start at a low price e.g. 10p – How many people are willing to pay 10p for this chocolate bar? Keep a tally of the number of hands up each time Continue with the questioning raising the price of the chocolate bar each time Draw a graph to show price on the vertical axis and quantity on the horizontal Discussion What is the relationship between price and demand? 1.5.1 Market demand and supply

Relationship between price and demand Team activity What was the relationship between price and demand? Can you explain this in just one sentence? How does the price influence the sales revenue of the business? Sales revenue is selling price x quantity demanded Calculate the sales revenue for 3 different prices Why might it be dangerous to set price too low? Why might it be dangerous to set price too high? BBC £231,000 sheep sets price record What happens to price when the demand for a “limited” product is in demand? 1.5.1 Market demand and supply

Relationship between price and demand How much would you pay for a soft drink? In your local supermarket In a convenience store From a vending machine at a swimming baths At a concert or gig At the cinema At a motorway service station How can the price of one product vary from retailer to retailer? Discussion Does the price of a product depend upon the amount of competition? I wonder! Do any of you visit the supermarket to stock up on goodies before going to the cinema? Why? 1.5.1 Market demand and supply

Relationship between price and supply As price increases more businesses will enter a market. This is because profit margins are greater so the business can make more profit for each unit sold If it costs a business £10 to produce a table work out the profit margin for selling tables at the following prices: £5, £10, £20, £100 What do you think that a business would try to do as the price in the market increases? The Maracana stadium in Rio de Janiero, Brazil will hold 76935 fans for the World Cup Final on 13th July 2014. Imagine that the face value of a ticket is £100 and that Brazil were playing England in the final (Imagine is the key word!). How much would people be willing to pay for a ticket? Will they increase the number of tickets if supply outstrips demand? 1.5.1 Market demand and supply

Commodity markets and normal markets Commodity markets are where raw or primary materials such as wheat are bought and sold. Buyers are likely to be businesses rather than consumers. The business will buy a commodity, add value and sell on to another business (B2B) or to the final consumer (B2C) A consumer (normal) market is one where individuals and households buy goods and services off businesses This is a B2C market and businesses will use the marketing mix to try to influence the buying habits of consumers B2B – Business to Business B2C – Business to Consumer 1.5.1 Market demand and supply

Price changes in raw materials and energy costs The cost of raw materials and energy e.g. electricity will have a big impact on small firms. All firms will have to pay bills for energy. This could range from transport costs e.g. petrol to heating costs e.g. gas. As the price increases so does the cost to the firm. It can either: Pass the cost on to the consumer in the form of higher prices Absorb the cost and have lower profit margins Fuel cost effects on small businesses Can you name three types of product where: i) prices can be increased, ii) the business will have to absorb the cost 1.5.1 Market demand and supply

MULTIPLE CHOICE 1. What would be the two most likely effects of an unexpected rise in demand for a firm’s products? □ A Supply will decrease □ B Interest rates will rise □ C The firm will wish to produce more □ D The exchange rate will rise □ E The price of the product will rise C, E 1.5.1 Market demand and supply 9