Transcript Supply and Demand

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.
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)?
Effect of Demand on Supply and Price
Demand
Rises
Consumers
start buying
lots of
soccer
balls.
Supply
Falls
Suppliers
can’t
keep up
with the
rapid sale
of soccer
balls.
Price
Rises
Suppliers
raise the
price of
soccer
balls.
Consumers
pay the
higher
price.
Effect of Demand on Supply and Price
Demand
Falls
Consumers
are not
buying
Basketballs
Supply
Rises
Basketballs
pile up in
the
suppliers’
warehouses
.
Price
Falls
Suppliers
lower
the price
to sell the
Basketballs
Effect of Supply on Price and Demand
Price Falls
Supply
Rises
bananas
are in
season.
The banana
are spoiling
before
consumers
purchase
them.
The
suppliers
want to sell
their
product
before it
spoils.
The lower
the price of
bananas.
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?