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Unit 1: Marketing Basics
Chapter 4:
Market Forces
Learning Goals
 Describe the three types of economic systems
 Describe the three main features of a market
economy
 Identify the three main market forces
 Explain the effect that price has on supply and
demand, and that supply and demand have on price
 Identify three factors that cause changes in demand
 Describe three ways a business can increase profits
 Explain the role of the consumer in determining
which products get produced
Day 1 Response Journal
Can you afford to buy everything
you want and need?
Why or why not?
***Save As Sept 23 in your Response
Journal folder***
Scarcity
 In Ch 2, you learned about economic needs and
wants
 These are needs and wants that can be satisfied
by buying something
 Unfortunately, you can’t afford to buy everything you
want and need, but why not?
 You do not have enough resources to meet all
your needs and wants
 Your resources include;
• Time
• Money
• Your ability to earn money
Scarcity
 You do not have enough resources because of a
problem called _______________
Scarcity
 Scarcity is a condition in which there are not enough
resources to meet needs
• E.g. if your school doesn’t have enough computers for
everyone, you may have to share or wait your turn
 Like people, countries also have a problem with scarcity
 Scarce resources limit the quantity of products a nation can
produce
Scarcity leads to three questions;
1.
2.
3.
What should we produce?
How should we produce it?
Who should get the products?
Scarcity
Video
Types of Economic
Systems
There are three basic types of economies;
1. Traditional Economy
2. Command Economy
3. Market Economy
1. Traditional Economy
 People in traditional economies
perform economic and social
activities the way they have
always been done
 In a traditional economy,
__________
answer the economic
Elders
questions based on traditions
 They may still use simple or
animal powered machinery
 E.g. Some Inuit and Mennonite
communities still maintain a
traditional economy
2. Command Economy
 In a command economy, the
______________
Government answers the economic
questions
 The decide what, how and for whom
 Read the example in paragraph 4 on page 38
 Everyone in the country shares the limited
resources
 E.g. Cuba and North Korea
3. Market Economy
 In a market economy, ______________
Individuals
answer the economic questions
Individuals decide;
 What to produce
 How to produce it
 Who gets the products
 Individuals control distribution because each
individual is free to buy whatever he or she
ants, based on price and ability to pay
 E.g. Canada, USA and Europe
Market Economies
The three main features of
a market economy are;
1. Private Property
2. Economic Freedom
3. Market Forces
1. Private Property
 A market economy is based on the right of
individuals to own land and products
 Ownership means that each person has the
right to do whatever he or she wants with his
or her property
 As long as it isn’t illegal
 Read the example in paragraph 2 on page
40
2. Economic Freedom
 Individuals make their own economic
decisions
 Individuals are free to control their own
labour
 Anyone is permitted to start their own business
 Each person is free to decided what work he or
she will do and which companies they will work for
3. Market Forces
 Even though individuals are free to make
economic decisions, market forces
____________
Influence those decisions
 The three major market forces are;
1. Supply & Demand
2. Profit
3. Competition
 Read the Market Forces at Work section of
the text, found on page 41
Mixed Economies
 In reality, there are no pure command or pure
market economies
 Most modern economies are mixed economies
 In a mixed economy, both the government and
individuals are involved in making economic
decisions
 It would be fair to say that Canada and the USA
have mixed economies
 The government regulates businesses to some degree –
e.g. they ensure businesses pay workers minimum wage
 The government also protects Canadians – e.g. the provide
us with universal health care
Day 1 Assigned Work
Students please complete the following;
 K & U Questions #1, 2 and 3 on page 48
 Application Question #1 on page 48
*** Save As Ch 4 Day 1 in your U1
folder***
Day 2 Response Journal
What do you believe are the reasons why
certain items, in store or online, get marked
down by 50% or more?
Are you more likely to buy an item that is on
sale?
***Save As Sept 24 in your Response
Journal folder***
1. Supply and Demand
 _______________
is the quantity of a
Demand
product consumers are willing and able to
buy at a certain price
 _______________
is the quantity of a
Supply
product suppliers are willing and able to
provide at a certain price
There are two ways to think about supply and
demand;
1. Individual
2. Market
1. Supply and Demand
 ______________
demand is the quantity of a
Individual
product demanded by an individual consumer
 ______________
demand is the sum of all
Market
individual demands for a specific product
 ______________
supply is the quantity of a product
Individual
supplied by one supplier
Market
 ______________
supply is the sum of all individual
suppliers’ supply of a specific product
 Typically, when someone refers to supply and
demand they are referring to Market Supply and
Demand
Effect of Price on Supply and
Demand
 The laws of supply and demand tell us what
happens to supply and demand as prices
change
 These laws apply to situations where other
factors do not change
 When other factors do not change, we call
this a _____________________________
Constant Environment
Effect of Price on Demand
In a constant environment, the Law of
Demand says that;
 When prices fall, demand will rise
 When prices rise, demand will fall
That is …
 Consumers buy more (demand rises) when
price is low
 Consumers buy less (demand falls) when
price is high
Law of Demand
Demand
will rise
When
prices
fall
Effect of Price on Supply
In a constant environment, the Law of Supply says
that;
 When prices are high, supply will rise
 When prices fall, supply will fall
That is …
 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
Law of Supply
When
prices
are
high
Supply
will
rise
Summary Chart
Effect of Price on Supply and
Demand
Price
Effect on Effect on
Level
Demand
Supply
High
Falls
Rises
Low
Rises
Falls
Changes in Demand
 In reality, the environment is rarely
constant
Changes in demand can be caused by
changes in;
 Marketing campaigns
 The economy
 Social trends
Changes in Demand
 One of the major roles of marketing is to increase
demand
 E.g. TV advertisements for a certain toy during the
Christmas season can result in increased demand for
that toy
 When the economy is doing well, consumers have
more money and as a result the demand for many
products will increase
 The opposite is true when the economy is struggling
 Changes in society effect demand
 E.g. The increase in the number of single person
households resulted in an increased demand for prepackaged, single portion convenient food
Effect of Supply and
Demand on Price
 Price is one of the four Ps
 Many factors determine the price that
marketers set for a given product
 One of those factors is the interaction of
supply and demand
 See the basketball, soccer ball and
strawberry examples on the next several
slides
Effect of Rising Demand on
Supply and Price
Basketball Example
 If demand for basketballs begins to rise,
supply will fall
Raise
 Therefore, marketers will __________
the
price
 If demand remains high even after the price
has been raised, suppliers will start making
more basketballs and supply will rise
Effect of Rising 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 Falling Demand on
Supply and Price
Soccer Ball Example
 If demand for soccer balls begins to fall,
supply will rise
Lower the
 Therefore, marketers will _________
price
 If demand remains low even after the price is
lowered, suppliers will stop making soccer
balls (for a while) and the supply will fall
further
Effect of Falling 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 Rising Supply on
Price and Demand
Strawberry Example
 For some items, like seasonal fruits, the
supply rises rapidly in the spring and
summer, so marketers will __________
the
Lower
price during these months to sell the fruit
faster
 In this situation, consumer demand rises
with the lowered prices until the fruits are out
of season
 The price for seasonal fruits, will then rise
again
Effect of Rising 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.
Summary Chart
Effect of Supply & Demand on
Price
Level of
Level of
Effect on
Demand
Supply
Price
High
Low
Rise
High
High
No Effect
Low
High
Falls
Low
Low
No Effect
Day 2 Assigned Work
Students please complete the following;
 Watch the Supply & Demand Video
 How Change Affects Supply and Demand
Worksheet (provided)
 K & U Questions #7 – 10 on page 48
*** Save As Ch 4 Day 2 in your U1 folder***
Day 3 Response Journal
Has technology changed the way companies
conduct business? Explain.
In your opinion, has technology changed
businesses for better or worse? Explain.
***Save As Sept 25 in your Response
Journal folder***
2. Profit
 Profit is another powerful force in a market
economy
 Profit is the money left over after all business
expenses are paid
Profit = Sales – Expenses & Costs
 The ______________
Profit Motive is the drive to earn
more profit
2. Profit
 In a pure market economy, the
__________________
keeps the profits
Business Owner
 In a pure command economy, the
_______________
keeps the profits
Government
 The profit motive does not operate in a command
economy, because the government keeps the
profits
 In a mixed economy, the business owner get
to keep most of the profits, but pays a
portion of their profits to the government in
the form of _________
Taxes
2. Profit
What is your profit if you own a store
that sells $100 worth of merchandise
and has costs of $75?
Sales – Costs/Expenses = Profit
$100 – $75 = $25
2. Profit
 Businesses in a market or mixed economy
are always looking for ways to increase
profits because of the profit motive
There are three main ways to increase profit;
1. Decrease costs/expenses
2. Increase productivity
• Productivity is the amount of product a worker
produces per hour
3. Increase sales
Decrease Costs/Expenses
 To increase profit, a business can lower their
costs/expenses
 Costs and expenses include things like rent,
raw materials, machinery maintenance, etc.
For example, what would happen to profit if
the store you own still has $100 in sales, but
you are able to reduce your costs to $25?
Sales – Costs = Profit
$100 – $25= $75
Your profit now increases to $75.
Increase Productivity
 To increase profit, a business can increase
productivity
 If workers produce more product per hour,
you will have more products to sell
 More products to sell means that you will
have higher sales
 Higher sales, with the same costs and
expenses, mean higher profit
 Read the example in paragraph 5 on page
45
Increase Productivity
A business can increase productivity in two ways;
1. Increase Efficiency
• One way to increase efficiency is through
_________________
Specialization
• Henry Ford used the assembly line and
specialization to increase efficiency in car
manufacturing
• Read the example in paragraph 2 on page 46
2. Use New Technology
• New technology, such as computers, can enable
workers to perform their jobs faster than before
Increase Sales
 To increase profit, a business can increase
sales
 Marketing can develop programs to gain
new customers, to get current customers to
buy more or to find new markets
For example, what would happen to profit if
the store you own sold $200 worth of goods,
and your costs stayed at $25?
Sales – Costs = Profit
$200 – $25 = $175
Your profit now increases to $175.
3. Competition
 ________________
is the contest between
Competition
two or more businesses to get customers
 In order for businesses to compete
successfully, they work hard to meet
customer needs and wants
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
 When a large group want
and buy a product, the
demand for the product
goes up
 When a large group decides
they do not want a product,
the demand for a product
goes down
Role of the Consumer
 If many consumers
buy a product, it will
probably succeed
 If few consumers
buy a product, it will
probably fail
 Read the example in
paragraph 4 on
page 47
Day 3 Assigned Work
Students please complete the following;
 K & U Questions #11, 12 & 13 on page 48
 Application Question #7 on page 48
*** Save As Ch 4 Day 3 in your U1 folder***