The Economics of Supply and Demand

1. 9 The Economics of Supply and Demand 9.1 Supply and Demand 9.2 Pricing Strategies 9.3 Market Conditions

2. Winning Strategies Cereal Stars • Wheaties cereal discovered by accident • first featured star was fictitious • Lou Gehrig was first actual star featured • many athletes make it a career goal to be featured on the box • in 1999, women in sports were featured Chapter 9

3. Lesson 9.1Supply and Demand Goals • Explain the relationships between supply, demand, and price. • Discuss the government’s influence on pricing. Chapter 9

4. Terms • law of demand • law of supply • scarcity • equilibrium • price fixing • bait and switch • price discrimination Chapter 9

5. THE LAWS OF SUPPLY AND DEMAND • demand • the relationship between the quantity of a product that consumers are willing and able to purchase and the price Chapter 9

6. producers • businesses that use resources to develop products and services • supply • the relationship between the quantity of a product that producers are willing and able to provide and the price Chapter 9

7. Price-Demand Relationships • law of demand • an inverse relationship • when the price goes up, demand goes down • when the price goes down, demand goes up Chapter 9

8. Price-Supply Relationships • law of supply • when the price goes up the supply produced goes up • when the price goes down the supply produced goes down Chapter 9

9. Scarcity • scarcity • consumers have limited money to spend • producers have limited resources to use for production • Consumers and producers must decide how to use their limited resources to meet unlimited wants and needs. Chapter 9

10. Equilibrium • equilibrium • the point where the supply and demand curves intersect • indicates the best quantity and price for goods and services Chapter 9

11. Chapter 9

12. Concerts in the Spotlight • Concert prices can be set high. • limited supply • high demand • If demand is high enough, supply can be increased by adding a second show. Chapter 9

13. How does price affect demand? Chapter 9

14. GOVERNMENT INFLUENCE ON PRICING • private-enterprise system • based upon independent decisions made by consumers and businesses Chapter 9

15. The U.S. government has an influence on prices charged for merchandise directly and indirectly through antitrust laws, taxation, and various consumer protection laws. Chapter 9

16. Benefits of Competition • monopoly • where one business controls the entire market • Antitrust laws encourage competition and help avoid monopolies. Chapter 9

17. Taxation • Taxation can be used by the government to encourage or discourage sales. Chapter 9

18. Illegal Pricing • price fixing • when related businesses conspire to charge high prices • illegal in U.S. Chapter 9

19. bait and switch • when a product that is advertised at a great price is “out of stock” • salesperson tries to sell customer a higher-priced alternative • advertised prices cannot be misleading • price discrimination • occurs when one individual, group, or business is charged a higher price than others purchasing the same product or service Chapter 9

20. List three ways the government influences pricing. Chapter 9

21. Lesson 9.2Pricing Strategies Goals • Discuss pricing strategies used by businesses to increase sales. • List five steps for determining price. Chapter 9

22. Terms • operating expenses • markup • price lines • loss-leader pricing Chapter 9

23. PRICING CONSIDERATIONS • price • the amount that customers pay for products and services Chapter 9

24. pricing • the process of establishing and communicating the value of goods and services to customers • operating expenses • all the costs associated with running your business • markup • the amount that is added to the cost of an item to cover operating expenses and allow for a profit Chapter 9

25. pure competition • many companies offering the same product • customers do not recognize major differences in the brands • the market will drive the prices low as businesses compete for consumers’ business • market price • determined by laws of supply and demand • if not sufficient to cover costs and allow for a profit, the business will cease production of the product Chapter 9

26. Pricing Policies • one-price policy • all customers pay the same price for a product • flexible pricing policy • allows customers to negotiate a price within a range Chapter 9

27. price lines • distinct categories of merchandise based upon price, quality, and features • geographic pricing • allows pricing variations based upon geographic location Chapter 9

28. A Variety of Pricing Strategies • Psychological Pricing • creating an illusion for customers • Prestige Pricing • higher-than-average pricing • targets customers seeking status and quality Chapter 9

29. Volume Pricing • when a supplier provides a lower price to a customer who buys a high volume of product • Promotional Pricing • offering customers an incentive to get them in the store • two-hour/ 50% off sale Chapter 9

30. Loss-Leader Pricing • the willingness to take a loss on the reduced prices of selected items in order to create more customer traffic • special event promotion • associates a special sale with a major event Chapter 9

31. rebates • coupons on products that customers can mail in for a refund • depends upon further action by the customer • multiple-unit pricing • a volume based discount • trade-in allowance • giving a store your old product when purchasing a new product • usually results in a discount on the new product purchase Chapter 9

32. List and describe five pricing strategies to increase sales. Chapter 9

33. DETERMINING THE PRICE • There are five steps to determining the price to charge for a product or service. Chapter 9

34. Establish the price objectives. • Determine the cost of the product or service. • Estimate consumer demand for your product or service. • Study the competition. • Decide on a pricing strategy. Chapter 9

35. List the five steps for determining price. Chapter 9

36. Lesson 9.3Market Conditions Goals • Define the business cycle and describe its impact on sports and entertainment. • Discuss the importance of monitoring consumer trends. Chapter 9

37. Terms • business cycle • inflation • shoulder periods Chapter 9

38. IMPACT OF THE BUSINESS CYCLE • business cycle (economic cycle) • the ups and downs of the economy Chapter 9

39. Chapter 9

40. Expansion • expansion • the upside of a business cycle • peak • highest point of growth in the economy Chapter 9

41. Contraction • contraction • the downside of a business cycle • recession or depression • inflation • when prices for goods and services rise faster than consumer income Chapter 9

42. Business Reaction • trough • lowest point of contraction • recovery • economy shows signs of improving • prosperity • the period of business expansion following recovery Chapter 9

43. Seasonal Cycles • For some businesses, demand fluctuates with the seasons. • high season • the season with the highest demand • low season • the season with the lowest demand Chapter 9

44. shoulder periods • periods of moderate demand • Sports and entertainment marketing strategies must be developed to help even out the fluctuations created by changing seasonal demands. Chapter 9

45. What is inflation and how does it contribute to recession? Chapter 9

46. IMPACT OF CONSUMER TRENDS • Trends are dictated by • television revenue • sponsors • consumer demand Chapter 9

47. Retro Television • Retro show fans like to relive the good old days and recall positive memories of growing up watching the stars in the sitcoms. • Popular show reruns are inexpensive to show on television. Chapter 9

48. Game Shows • There are game show channels that rerun old favorites. • New game shows are being produced to meet demand. Chapter 9

49. Audience Ratings Speak • Television networks cannot afford the risk of having viewers switch channels to watch a more exciting show on a competing network. • Some series do not last more than six airings due to flat ratings. Chapter 9

50. Socio-Culture Issues • Socio-culture issues include trends in • customer attitudes • lifestyles • opinions • demographics • Assessing consumers’ ever-changing needs and wants is the bottom line for the success or failure of a product or service. Chapter 9