Ch. 8, Market Forces Marketing Dynamics Supply Demand

Objectives Explain who controls a market economy. Ch. 8, Market Forces 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.

Objectives Describe the effect of supply and demand on price. Ch. 8, Market Forces 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.

Marketing Terms demand supply market demand market supply Ch. 8, Market Forces Marketing Terms demand supply market demand market supply law of demand law of supply profit motive productivity competition

Market Forces at Work How do the right products get to the Ch. 8, Market Forces Market Forces at Work How do the right products get to the right places, in the right quantities, and at the right prices?

Market Forces at Work Three main market forces Ch. 8, Market Forces 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

Supply and Demand Demand quantity of a product Ch. 8, Market Forces Supply and Demand Demand quantity of a product a consumer is willing and able to buy at a certain price

Supply and Demand Supply quantity of a product Ch. 8, Market Forces Supply and Demand Supply quantity of a product a supplier is willing to provide at a certain price ©2007 JupiterImages Corporation

#1 How does individual demand differ from market demand? Ch. 8, Market Forces Supply and Demand Individual demand quantity of a product demanded by an individual consumer Market demand sum of all individual demands for a specific product #1 How does individual demand differ from market demand?

#2 How does individual supply differ from market supply? Ch. 8, Market Forces Supply and Demand Individual supply quantity of a product supplied by one supplier Market supply sum of all individual suppliers’ supply of a specific product #2 How does individual supply differ from market supply?

Effect of Price on Demand Ch. 8, Market Forces Effect of Price on 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

Ch. 8, Market Forces Law of Demand Demand will rise When prices fall

Law of Demand Consumers buy more (demand rises) when price is low. Ch. 8, Market Forces 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?

Effect of Price on Supply Ch. 8, Market Forces Effect of Price on 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

Law of Supply When prices are high Supply will rise Ch. 8, Market Forces Law of Supply Supply will rise When prices are high

Law of Supply Manufacturers will supply Ch. 8, Market Forces Law of Supply Manufacturers will supply more of a product when its price is high because they will make more profit less of a product when the price falls because they will make less profit

#4 Is the environment ever constant? Ch. 8, Market Forces 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?

#5 Give an example of how each of these can change demand. Ch. 8, Market Forces 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.

Effect of Supply and Demand on Price Ch. 8, Market Forces 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

Ch. 8, Market Forces #6 What happens to the price of fruit when the supply of fruit is high, but the demand is low?

Effect of Supply and Demand on Price Ch. 8, Market Forces 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)?

Effect of Demand on Supply and Price Ch. 8, Market Forces $35 Supply Falls Demand Rises Suppliers can’t keep up with the rapid sale of basketballs. Price Rises Consumers start buying lots of basketballs. Suppliers raise the price of basketballs. Consumers pay the higher price. $20

Effect of Rising Demand on Supply and Price Ch. 8, Market Forces 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

Effect of Demand on Supply and Price Ch. 8, Market Forces Effect of Demand on Supply and Price Demand Falls Price Falls Supply Rises Suppliers lower the price to sell the soccer balls. Consumers are not buying soccer balls. Soccer balls pile up in the suppliers’ warehouses. $20 $15

Effect of Falling Demand on Supply and Price Ch. 8, Market Forces 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

Effect of Supply on Price and Demand Ch. 8, Market Forces Effect of Supply on Price and Demand Price Falls Supply Rises The suppliers want to sell their product before it spoils. They lower the price of strawberries. Demand Rises Strawberries are in season. The berries are spoiling before consumers purchase them. The reduction in price increases consumers’ demand for strawberries. $2 $4

Effect of Rising Supply on Price and Demand Ch. 8, Market Forces 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

Profit $ = - $ $ Profit motive is the drive to earn more profit Ch. 8, Market Forces Profit Profit motive is the drive to earn more profit $ $ $ = - Costs and Expenses Sales Profit #8 What is profit?

Profit What is your profit if Sales – Costs = Profit Ch. 8, Market Forces 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 $____

Profit Three main ways to increase profit decrease costs or expenses Ch. 8, Market Forces Profit Three main ways to increase profit decrease costs or expenses increase productivity the amount of product a worker produces per hour increase sales

Profit To increase profit Think of your store with the $100 in sales Ch. 8, Market Forces 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 = $____

Profit To increase profit, increase productivity Ch. 8, Market Forces 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

Profit To increase profit, increase sales Ch. 8, Market Forces 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 $_____

#9 What accounts for the difference in profit in columns 2 and 3? Ch. 8, Market Forces Sales – Costs = Profit Situation 1 Situation 2 Situation 3 Sales $100 $200 Costs $75 $25 Profit $175 #9 What accounts for the difference in profit in columns 2 and 3?

#10 How does competition yield these results? Ch. 8, Market Forces 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?

Role of the Consumer Consumers (as a group) Ch. 8, Market Forces Role of the Consumer Consumers (as a group) have a large impact on a market economy through the forces of supply and demand

#11 Give an example of how consumers affect the success of a product. Ch. 8, Market Forces 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.

Review Who controls a market economy? Ch. 8, Market Forces 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?

Ch. 8, Market Forces Glossary Back 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).

Ch. 8, Market Forces Glossary Back 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.

Ch. 8, Market Forces Glossary Back 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.