Supply and Demand Marketing I

Intro to demand In the USA, the forces of supply and demand work together to set price Demand is the desire, willingness, and ability to buy a good or service What are some items/services you have a demand for?

Demand What made him buy it?

He bought the “Koenigsegg CCXR Trevita” because it’s the most expensive car. It cost nearly $5 million and it shines like millions of diamonds.

Demand People are normally willing to buy less of a product when the price is high and more of a product when the price is low. According to the law of demand (assumes all other things are equal), quantity demanded and price move in opposite directions. Therefore, as the price rises its demand falls. For example gas prices today…Price is low and demand is high. This works in reverse as well; if the price falls then the demand rises.

Supply All things being equal, as price rises quantity will rise. For example So why do producers produce more of a product when prices rise? to seek higher profits they can cover high cost of production

Shortages vs Surplus A shortage occurs when quantity demanded exceeds quality supplied. A shortage implies the market price is too low. A surplus occurs when quantity supplied exceeds quantity demanded. A surplus implies the market price is too high ( as a result we get sales)

Shift or changes in the market (Demand) A change in any variable other than price can influence demand Factors that can change demand: change in consumer income population change consumer preferences prices of similar products (competition)

Shift or changes in the market (Supply) A change in any variable other than price can influence quantity supplied Factors that shift the supply curve: change in costs of production change or increase in technology change in the size of the market (competition enters into the market)

Explaining shift or changes in Supply & Demand  Summer Vacations -- Drive More (Demand Shift)  In May, refineries shut down for maintenance and shift over to seasonal blends (Supply Shift)

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

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

15 Consumer s 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

16 Effect of Supply on Price and Demand The suppliers want to sell their product before it spoils. The lower the price of bananas. Price Falls bananas are in season. The banana are spoiling before consumers purchase them. Supply Rises Demand Rises The reduction in price increases consumers ’ demand for strawberrie s.