Download Demand, Supply & Price

Entrepreneurship 3209
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We have discussed the role played by the
consumer
 Influence on Products
 Influence on Price
 Influence on Service
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Producer
Consumer
Marketplace
Competition
Pricing Power
Customers
Consumer Purchasing Power
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The amount of a good or service that
consumers demand, the amount that
suppliers can supply, & the price all affect one
another.
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This is the relationship that we will now
explore.
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Demand is the quantity of a good or service
that consumers are willing & able to buy at a
particular place
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Since each of us have different needs & wants
and different levels of ability to pay for things,
we each have different demands
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When we buy a particular good or use a
particular service, we are expressing a demand
for it
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Usually, consumers buy more as price
decreases (increase demand) & buy less as
price increases (decrease demand)
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law of demand: The economic principle that
demand goes up when prices goes down;
and, conversely, comes down when prices
go up
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Consumer must be interested or aware of the
good or service (advertising & marketing plays a
role here)
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Enough of it must be available
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The price must be reasonable & competitive
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It must be accessible to the consumer (location,
location, location)
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Changing Consumer Income
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Changing Consumer Tastes
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Changing Expectations for the Future
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Changes in Population
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usually an increase in income means people
buy more.(cars, furniture, TVs)
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For some types of goods the opposite may
be true
 Increased income may see a decrease
in grocery items because people are
buying more restaurant meals
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Changes in consumer tastes over time can
cause an increase in demand for fashionable
items & a decrease in demand for what is
perceived as unfashionable
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Jean styles come in and go out of fashion
regular intervals
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if prices or income are expected to increase
consumers may purchase more now in
anticipation
Upward change in expectations = increase
demand
Reverse is true if the is a decrease in
expectations (demand will decrease).
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Population increases creates need for more
houses, roads, cars, services, etc
We also find that as certain segments of the
population increases certain things increase
in demand.
 (Seniors in Canada are creating a demand for
health care, retirement homes, certain sporting
activities such as golf, etc )
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If the goods & services consumers demand
can be provided at prices they are willing to
pay, businesses will supply them
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Supply: The quantity (amount) of a good or
service that producers can provide
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determined by the costs of producing it and
by the price people are willing to pay for it
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Law of Supply: The economic principle that
supply goes up when prices goes up; and,
conversely, comes down when prices come
down
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The cost of producing it
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The price consumers will pay
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Changes in the Number of Producers
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Changes in Price
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Changes in Technology
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Changing Expectations for the Future
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Changing Production Costs
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An increase in producers will increase supply
– if demand remains the same, price will
drop!
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If price reduces then people may stop
producing it. E.g. If cod prices fall, fishermen
will catch other fish
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Changes in technology can reduce the cost of
production, encouraging more businesses to start
producing. E.g. CPU wafers, continually getting
smaller and smaller and are able to produce more
per wafer
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Many producers attempt to predict economic
conditions and consumer demand for two to
five years in advance. E.g. Automobile
companies
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They increase or decrease supply accordingly
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If a local baker owner finds a lower cost for
ingredients, they can produce more goods for
the same cost.
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The opposite may be true as well, should the
supplier increase costs
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Relating Price to supply and demand
 If demand is high while supply is low, prices tend to
be high
 If demand is low while supply is high, prices tend to
be low
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Relating Price to supply and
demand
 The equilibrium price :
When the quantity of
goods that a producer is
willing to supply at a
certain price matches the
quantity of goods that
consumers are willing to
buy at that price
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What would you do if a good or service that you use
suddenly increases in price? Think about purchases to
meet both needs and wants.