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Supply and Demand

Learn how supply and demand dictate prices in the USA. Explore the dynamics of demand, factors influencing supply, shortages, surpluses, and the effects of shifts in the market. Discover how changes in consumer income, population, preferences, and technology impact market equilibrium.

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Supply and Demand

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  1. Supply and Demand Marketing I

  2. 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?

  3. Demand • What made him buy it?

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

  5. 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.

  6. 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

  7. 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)

  8. 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)

  9. 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)

  10. 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)

  11. 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)?

  12. Effect of Demand on Supply and Price Supply Falls $40 Demand Rises Suppliers can’t keep up with the rapid sale of soccer balls. Price Rises Consumers start buyinglots of soccer balls. Suppliers raise the price of soccer balls. Consumers pay the higher price. $10

  13. Effect of Demand on Supply and Price Demand Falls Price Falls Supply Rises Suppliers lower the priceto sell the soccer balls. Consumers are not buyingsoccer balls. Soccer balls pile up in the suppliers’ warehouses. $30 $10

  14. Effect of Supply on Price and Demand Price Falls Supply Rises The suppliers want to sell their product before it spoils. The lower the price of bananas. Demand Rises bananas are in season. The banana are spoiling before consumers purchase them. The reduction in price increases consumers’ demand for strawberries. $1

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