Download 1.3 Choosing to spend

1.3 Choosing to spend
Markets and how they work DEMAND
• The demand is the quantity purchased at a
given price.
• Factors affecting demand:
– Price
– Income level
– Advertising and branding influence desire and
loyalty for a product
– Prices of substitutes (similar goods) and
complements (ie: fuel is a complement for cars)
– Fashion
Markets and how they work SUPPLY
• The quantity that businesses produce for people to
buy
• Businesses tend to supply more, the higher the price.
• The price they charge has to cover the costs of the
resources used in production.
• Factors affecting supply and how much businesses
charge include:
– Cost of raw materials
– Wage rates (OT may be needed for higher output)
– Productivity of the workers
Why market prices change
• When buyers and sellers come together, a
market is formed.
• For most goods and services, the market
price is determined by the amount buyers are
willing to pay and the price that businesses
need to be paid to cover their costs.
• Eventually, the price will settle at a point where
supply equals demand, known as the market
price
• Prices change when there are changes in
demand or supply.
Competition
• Usually there is more than one supplier for
each type of good, so businesses face
competition.
• They have to fight to win consumers from
other businesses by:
– Advertising and branding
– Improving quality
– Changing the design and features
– Lowering the price by improving production
methods
Competition
Consumers can benefit
greatly from competition
through:
• Lower prices
• Greater variety
• Better quality
Some disadvantages of
competition:
• Quality could also be
lowered as businesses try
to cut costs
• After-sales service can
suffer if too many
resources are put into
sales