Supply and Demand Marketing I

For Starters… Draw two lines (up or down) to show the situations shown below – write a description as to why you choose this direction Demand for a north face fleece jacket during a hot summer day Demand for Jordan’s when the price falls by 10%

Critical Thinking… How much is a superstar in the NBA or NFL paid compared to an average players?

Critical Thinking… Do you think you would pay more for a 1962 corvette or a 2015 corvette…All being equal and are both in mint condition. Rocks…Which cost more...Diamonds or gravel??

Critical Thinking… Why are some things more expensive than other?

The law of supply and demand The price of an item will GO DOWN if the supply increases or if the demand for the item decreases. The price of an item will go up if the supply decreases or if the demand for the item increases For example: Supply of superstars in the NBA or NFL is low yet demand is very high for them, so their price is high. In contrast there is a greater supply of average players and the demand for them is not as high, so their price is relatively low.

What is Demand? The willingness and ability of the people within a market area to purchase a particular amounts of goods or services at a variety of alternative process during a specified time

What is Demand? In the USA, the forces of supply and demand work together to set price The willingness and ability of the people within a market area to purchase a particular amounts of goods or services at a variety of alternative process during a specified time 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 sparkles like diamonds.

First things, First Any time we talk about theories of supply and demand remember that we consider all things equal.

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 higher. This works in reverse as well; if the price falls then the demand rises.

Law of Demand What is something a company can do to reverse the affect of a high priced item to ensure consumers purchase the product?

What is Supply The total amount of a good or service available for purchase

Supply All things being equal, as price rises quantity will rise. So why do producers produce more of a product when prices rise????

Answers…. to seek higher profits they can cover high cost of production

Why is that???

Shortages vs Surplus A shortage occurs when quantity demanded exceeds quantity 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 or lower prices)

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, trends prices of similar products New competition Kettlemen’s vs. Panera Bread

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 & holidays -- Drive More, fly more, travel up (Demand Shift in gas, flights, means to travel)  oil refineries shut down for maintenance (Supply Shift) forces prices up.

23 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)?

24 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

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

26 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 bananas.

Explain the law of demand. How does this affect consumer spending? Explain the law of supply. How does this affect consumer spending?