1. Part 1 Marketing Basics
Chapter 4 Market Forces
Ch4

2. Learning Goals describe the three types of economic systems
describe the three main features of a market economy
identify the three main market forces
explain the effect that price has on supply and demand, and that supply and demand have on price
(Continued)

3. Learning Goals identify three factors that cause changes in demand
describe three ways a business can increase profits
explain the role of the consumer in determining which products get produced

4. Marketing Terms supply scarcity market demand traditional economy
command economy
market economy
mixed economy
demand
supply
market demand
market supply
law of demand
law of supply
profit motive
productivity
competition

5. Scarcity
Scarcity
a condition in which there are not enough resources to meet needs
Scarcity leads to three questions.
What should we produce?
How should we produce it?
Who should get the products?

6. Types of Economic Systems
Three basic types of economies
traditional economy
command economy
market economy

7. Traditional Economy
In a traditional economy, elders answer the economic questions based on traditions.
In Canada, some Inuit still maintain a traditional economy.

8. Command Economy
In a command economy, the national government makes all the economic decisions.
Everyone in the country shares limited resources.
Features
government ownership of land and capital
government control of labour
government control of all economic activity

9. Market Economy
In a market economy, individuals make economic decisions.
Individuals decide
what to produce
how to produce it
who gets the products

10. Market Economy Features
Three main features of a market economy
private property
economic freedom
market forces
Ch4

11. Mixed Economies There are no pure command or pure market economies.
Most modern economies are mixed economies.

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

13. Market Forces at Work Three main market forces supply and demand
profit
competition
A market economy is also called a free market economy because market forces are free to influence economic decisions.

14. Supply and Demand Demand
quantity of a product a consumer is willing and able to buy at a certain price
Supply
quantity of a product a supplier is willing to provide at a certain price
(Continued)

15. 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
(Continued)

16. 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

17. 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.

18. Law of Demand
Demand will rise
When prices fall
(Continued)

19. Law of Demand Consumers buy more (demand rises) when price is low.
Consumers buy less (demand falls) when price is high.

20. 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.

21. Law of Supply
When prices are high
Supply will rise
(Continued)

22. Law of Supply
Manufacturers will supply more of a product when its price is high because they will make more profit. Manufacturers will supply less of a product when the price falls because they will make less profit.

23. 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.

24. 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.

25. 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.

26. Effect of Demand on Supply and Price
Supply Falls
$35
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

27. 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.

28. 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

29. 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.

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

31. Effect of Rising Supply on Price and Demand
For some items, like seasonal fruits, the supply rises rapidly, so
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, so
the price then rises

32. Profit $ $ $ = - Profit motive is the drive to earn more profit.
Costs and Expenses
Sales
Profit
(Continued)

33. Profit
What is your profit if your store sells $100 worth of merchandise and your costs are $75?
Sales – Costs = Profit
$100 – $75 = $25
Your profit is $25.
(Continued)

34. Profit Three main ways to increase profit decrease costs or expenses
increase productivity (the amount of product a worker produces per hour)
increase sales
(Continued)

35. Profit To increase profit, decrease costs and/or 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 = $75
Your profit would be $75.
(Continued)

36. Profit To increase profit, increase productivity.
If workers produce more product per hour, you will have more products to sell.
More products to sell means that you will have higher sales.
Higher sales, with the same costs and expenses, mean higher profit.
(Continued)

37. 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 = $175
Your profit would be $175.

38. Competition Competition
businesses competing with each other to get customers
Competition results in
better products
better quality
more services
lower prices

39. Role of the Consumer
Consumers (as a group) have a large impact on a market economy through the forces of supply and demand.
(Continued)

40. Role of the Consumer
If many consumers buy a product, it will probably succeed.
If few consumers buy a product, it will probably fail.
Ch4

41. 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?

42. Glossary
Back
command economy. Economy in which the national government makes all the economic decisions.
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.
(Continued)

43. Glossary
Back
law of demand. When prices fall, demand will rise (in a constant environment).
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.
(Continued)

44. Glossary
Back
market economy. Economy in which individuals answer the economic questions and market forces are allowed to operate.
market supply. Sum of all the individual suppliers’ supply of a specific product, for a specific time period.
(Continued)

45. Glossary
Back
mixed economy. Economy in which both the government and individuals are involved in making economic decisions.
productivity. Amount of product a worker produces per hour (product/hour).
profit motive. Drive to earn more profit.
(Continued)

46. Glossary
Back
scarcity. Condition in which there are not enough resources to meet needs.
supply. Quantity of a specific product that a supplier is willing to supply at a certain price.
traditional economy. Economy in which the economic questions are answered by the elders based on the society’s traditions.