Download Market Forces PPT - Mr. Chumley FHCI

Economic Systems
and
Market Forces
What goods and services will a country
produce?
Scarcity
 All economies are based on the principle of
“scarcity”:
All people and countries have limited
resources that can not satisfy unlimited
wants.
An Economic System
 An economic system is a method used by a society
to produce and distribute goods and services.
 There are three key questions addressed by every
economic system:
 What goods and services will be produced?
 How will these goods and services be produced?
 Who will consume these goods and services?
Types of Economic
Systems
There are three pure types of economic
systems:
• Traditional
• Command
• Free-Market
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A Traditional Economy
 In a traditional economy, people live and
work as their ancestors lived and worked.
 In a traditional economy, we
produce what our ancestors produced.
produce it the way our ancestors did.
distribute it the way our ancestors did.
Traditional Economy
In a traditional economy, elders answer the
economic questions based on traditions.
 In Canada, some Inuit still maintain a
traditional economy.
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
Market Economy
In a market economy, individuals make
economic decisions.
Individuals decide:
 what to produce
 how to produce it
 who gets the products
Mixed Economies
There are no pure command or pure market
economies.
Most modern economies are mixed
economies:
 An economy where both government and
individuals are involved in making
economic decisions.
Market Forces
How do the right products get to the right
places, in the right quantities, and at the right
prices?
Market Forces at Work
A market economy is also called a free market
economy because market forces are free to
influence economic decisions.
Three main market forces
 supply and demand
 profit
 competition
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)
Supply and Demand
Market demand
 sum of all individual demands for a specific
product
Market supply
sum of all individual suppliers’ supply of a
specific product
(Continued)
Effect of Price on Demand
Law of demand
 when prices fall, demand will rise
 when prices rise, demand will fall
Law of Demand
Demand
will rise
When
prices
fall
Law of Demand
Consumers buy more (demand rises) when price is low.
Consumers buy less (demand falls) when price is high.
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.
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.
Law of Supply
When
prices
are
high
Supply
will
rise
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.
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.
Effect of 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 Demand on
Supply and Price
Demand
Falls
Consumers
are not
buying
soccer
balls.
Supply
Rises
Soccer balls
pile up in the
suppliers’
warehouses.
Price
Falls
Suppliers
lower
the price
to sell the
soccer
balls.
Effect of Supply on Price
and Demand
Supply
Rises
Strawberries
are in season.
The berries
are spoiling
before
consumers
purchase
them.
Price Falls
The 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.
Profit
Profit motive is the drive to earn more profit.
Sales
Costs and
Expenses
Profit
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)
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)
Competition
Competition
 businesses competing with each other to get
customers
Competition results in
 better products
 better quality
 more services
 lower prices
Role of the Consumer
Consumers (as a
group) have a large
impact on a market
economy through the
forces of supply and
demand.
(Continued)