Chapter 4: Market Forces Unit 1: Marketing Basics

Chapter 4: Market Forces

Unit 1: Marketing Basics

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 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

Day 1 Response Journal

Can you afford to buy everything you want and need?

Why or why not?

***Save As Sept 23 in your Response Journal folder***

Scarcity

In Ch 2, you learned about economic needs and wants These are needs and wants that can be satisfied

by buying something Unfortunately, you can’t afford to buy everything you

want and need, but why not?

You do not have enough resources to meet all your needs and wants

Your resources include; • Time• Money • Your ability to earn money

Scarcity

You do not have enough resources because of a problem called _______________ Scarcity is a condition in which there are not enough

resources to meet needs• E.g. if your school doesn’t have enough computers for

everyone, you may have to share or wait your turn Like people, countries also have a problem with scarcity Scarce resources limit the quantity of products a nation can

produce

Scarcity leads to three questions; 1.What should we produce?

2.How should we produce it?

3.Who should get the products?

Scarcity

Scarcity Video

Types of Economic Systems

There are three basic types of economies;

1. Traditional Economy

2. Command Economy

3. Market Economy

1. Traditional Economy

People in traditional economies perform economic and social activities the way they have always been done

In a traditional economy, __________ answer the economic questions based on traditions

They may still use simple or animal powered machinery

E.g. Some Inuit and Mennonite communities still maintain a traditional economy

Elders

2. Command Economy

In a command economy, the ______________ answers the economic questions

The decide what, how and for whom Read the example in paragraph 4 on page 38

Everyone in the country shares the limited resources

E.g. Cuba and North Korea

Government

3. Market Economy

In a market economy, ______________ answer the economic questions

Individuals decide; What to produce How to produce it Who gets the products

Individuals control distribution because each individual is free to buy whatever he or she ants, based on price and ability to pay

E.g. Canada, USA and Europe

Individuals

Market Economies

The three main features of a market economy are;

1. Private Property

2. Economic Freedom

3. Market Forces

1. Private Property

A market economy is based on the right of individuals to own land and products

Ownership means that each person has the right to do whatever he or she wants with his or her property As long as it isn’t illegal

Read the example in paragraph 2 on page 40

2. Economic Freedom

Individuals make their own economic decisions

Individuals are free to control their own labour Anyone is permitted to start their own business Each person is free to decided what work he or

she will do and which companies they will work for

3. Market Forces

Even though individuals are free to make economic decisions, market forces ____________ those decisions

The three major market forces are;

1. Supply & Demand

2. Profit

3. Competition

Read the Market Forces at Work section of the text, found on page 41

Influence

Mixed Economies

In reality, there are no pure command or pure market economies

Most modern economies are mixed economies In a mixed economy, both the government and

individuals are involved in making economic decisions

It would be fair to say that Canada and the USA have mixed economies The government regulates businesses to some degree –

e.g. they ensure businesses pay workers minimum wage The government also protects Canadians – e.g. the provide

us with universal health care

Day 1 Assigned Work

Students please complete the following; K & U Questions #1, 2 and 3 on page 48Application Question #1 on page 48

*** Save As Ch 4 Day 1 in your U1 folder***


What do you believe are the reasons why certain items, in store or online, get marked

down by 50% or more?

Are you more likely to buy an item that is on sale?


1. Supply and Demand

_______________ is the quantity of a product consumers are willing and able to buy at a certain price

_______________ is the quantity of a product suppliers are willing and able to provide at a certain price

There are two ways to think about supply and demand;

1. Individual

2. Market

Demand

Supply

1. Supply and Demand

______________ demand is the quantity of a product demanded by an individual consumer

______________ demand is the sum of all individual demands for a specific product

______________ supply is the quantity of a product supplied by one supplier

______________ supply is the sum of all individual suppliers’ supply of a specific product

Typically, when someone refers to supply and demand they are referring to Market Supply and Demand

Individual

Market

Individual

Market

Effect of Price on Supply and Demand

The laws of supply and demand tell us what happens to supply and demand as prices changeThese laws apply to situations where other factors do not changeWhen other factors do not change, we call this a _____________________________Constant Environment

Effect of Price on Demand

In a constant environment, the Law of Demand says that;

When prices fall, demand will rise When prices rise, demand will fall

That is …Consumers buy more (demand rises) when price is low

Consumers buy less (demand falls) when price is high

Law of Demand

Demand will rise

When prices

fall

Effect of Price on Supply

In a constant environment, the Law of Supply says that;

When prices are high, supply will rise When prices fall, supply will fall

That is …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

Law of Supply

Supply willrise

When prices

are high

Summary Chart

Effect of Price on Supply and Demand

Price Level

Effect on Demand

Effect on Supply

High Falls Rises

Low Rises Falls

Changes in Demand

In reality, the environment is rarely constant

Changes in demand can be caused by changes in; Marketing campaignsThe economySocial trends

Changes in Demand

One of the major roles of marketing is to increase demand E.g. TV advertisements for a certain toy during the

Christmas season can result in increased demand for that toy

When the economy is doing well, consumers have more money and as a result the demand for many products will increase The opposite is true when the economy is struggling

Changes in society effect demand E.g. The increase in the number of single person

households resulted in an increased demand for pre-packaged, single portion convenient food

Effect of Supply and Demand on Price

Price is one of the four Ps Many factors determine the price that

marketers set for a given product One of those factors is the interaction of

supply and demand See the basketball, soccer ball and

strawberry examples on the next several slides

Effect of Rising Demand on Supply and Price

Basketball ExampleIf demand for basketballs begins to rise, supply will fall

Therefore, marketers will __________ the price

If demand remains high even after the price has been raised, suppliers will start making more basketballs and supply will rise

Raise

Effect of Rising Demand on Supply and Price

Demand Rises

Consumers start buying

lots of basketballs.

Supply Falls

Suppliers can’t

keep up with the rapid sale of

basketballs.

Price Rises

Suppliers raise the price of

basketballs. Consumers

pay the higher price.

Effect of Falling Demand on Supply and Price

Soccer Ball ExampleIf demand for soccer balls begins to fall, supply will rise

Therefore, marketers will _________ the price

If demand remains low even after the price is lowered, suppliers will stop making soccer balls (for a while) and the supply will fall further

Lower

Effect of Falling Demand on Supply and Price

Demand Falls

Consumers are not buyingsoccer balls.

Supply Rises

Soccer balls pile up in the

suppliers’ warehouses.

Price Falls

Suppliers lower

the priceto sell the

soccer balls.

Effect of Rising Supply on Price and Demand

Strawberry ExampleFor some items, like seasonal fruits, the supply rises rapidly in the spring and summer, so marketers will __________ the price during these months to sell the fruit fasterIn this situation, consumer demand rises with the lowered prices until the fruits are out of season

The price for seasonal fruits, will then rise again

Lower

Effect of Rising Supply on Price and Demand

Supply Rises

Strawberries are in season.

The berries are spoiling

before consumers purchase

them.

Price FallsThe suppliers want to sell

their product before it spoils.

They lower the price of

strawberries.

Demand Rises

The reduction in price

increases consumers’ demand for

strawberries.

Summary Chart

Effect of Supply & Demand on Price

Level of Demand

Level of Supply

Effect on Price

High Low Rise

High High No Effect

Low High Falls

Low Low No Effect

Day 2 Assigned Work

Students please complete the following; Watch the Supply & Demand VideoHow Change Affects Supply and Demand Worksheet (provided)K & U Questions #7 – 10 on page 48



Has technology changed the way companies conduct business? Explain.

In your opinion, has technology changed businesses for better or worse? Explain.


2. Profit

Profit is another powerful force in a market economy

Profit is the money left over after all business expenses are paid

Profit = Sales – Expenses & Costs

The ______________ is the drive to earn more profit

Profit Motive

2. Profit

In a pure market economy, the __________________ keeps the profits

In a pure command economy, the _______________ keeps the profits The profit motive does not operate in a command

economy, because the government keeps the profits

In a mixed economy, the business owner get to keep most of the profits, but pays a portion of their profits to the government in the form of _________

Business Owner

Government

Taxes

2. Profit

What is your profit if you own a store that sells $100 worth of merchandise and has costs of $75?

Sales – Costs/Expenses = Profit

$100 – $75 = $25

2. Profit

Businesses in a market or mixed economy are always looking for ways to increase profits because of the profit motive

There are three main ways to increase profit;

1. Decrease costs/expenses

2. Increase productivity • Productivity is the amount of product a worker

produces per hour

3. Increase sales

Decrease Costs/Expenses

To increase profit, a business can lower their costs/expenses

Costs and expenses include things like rent, raw materials, machinery maintenance, etc.

For example, what would happen to profit if the store you own still has $100 in sales, but you are able to reduce your costs to $25?

Sales – Costs = Profit

$100 – $25 = $75

Your profit now increases to $75.

Increase Productivity

To increase profit, a business can 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


Increase Productivity

A business can increase productivity in two ways;

1. Increase Efficiency• One way to increase efficiency is through

_________________• Henry Ford used the assembly line and

specialization to increase efficiency in car manufacturing

• Read the example in paragraph 2 on page 46

2. Use New Technology• New technology, such as computers, can enable

workers to perform their jobs faster than before

Specialization

Increase Sales

To increase profit, a business can increase sales

Marketing can develop programs to gain new customers, to get current customers to buy more or to find new markets

For example, what would happen to profit if the store you own sold $200 worth of goods, and your costs stayed at $25?

Sales – Costs = Profit

$200 – $25 = $175

Your profit now increases to $175.

3. Competition

________________ is the contest between two or more businesses to get customers

In order for businesses to compete successfully, they work hard to meet customer needs and wants

Competition results in … Better products Better quality More services Lower prices

Competition

Role of the Consumer

Consumers (as a group) have a large impact on a market economy through the forces of supply and demand When a large group want

and buy a product, the demand for the product goes up

When a large group decides they do not want a product, the demand for a product goes down

Role of the Consumer

If many consumers buy a product, it will probably succeed

If few consumers buy a product, it will probably fail


Day 3 Assigned Work

Students please complete the following; K & U Questions #11, 12 & 13 on page 48Application Question #7 on page 48


Documents

Chapter 4: Market Forces Unit 1: Marketing Basics