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Supply and Demand

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by

Chris Lynn

on 17 October 2016

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Transcript of Supply and Demand

Supply and Demand
What do you do the day after Thanksgiving?
Let's go SHOPPING!!!!!
Demand=the desire to own something and the ability to pay for it.
SUPPLY!
Name three things that you really want to buy and why you want to buy them
The Law of Demand: when a good's price is lower, consumers will buy more of it. When the price is higher, consumers will buy less of it
The Substitution Effect: when a consumer reacts to a rise in the price of one good by consuming less of that good and more of a substitute good.
Demand is determined by two behavioral patterns
Income Effect: the change in consumption that results when a price increase causes real income to decrease
Question: A sharp price increase for what item could influence your spending in multiple areas?
BUT income effect can be reverse when prices drop. You then feel "wealthier" and in many cases will spend more money. You need to be careful about this!
Shifts in Demand
What changes demand?
Income
Population
Tastes and Expectations
Tastes:
People have varied interests.
Lots of things can change these interests
That's where trends and fads come in
In order to be successful at business you
must understand these and even try to "stay ahead" of or even set trends

Satisfaction:
We generally feel less satisfied or feel
a product may be less useful the more we buy of it. This is also known as the Law of Diminishing Marginal Utility

Advertising
Consumer Expectations

We often have expectations about pricing, quality and features of a product or service

The fulfillment or lack of fulfillment will often determine the demand for those products
Prices of related goods

Complements: goods that are bought or used
together

Substitutes: goods that can be used
instead
of something else
Demographics

Age, race, ethnicity, religion, gender, economic status
Size and movement of population
Elastic and Inelastic Demand (or what change in demand is actually known as
Elastic Demand: If you buy much less or more of a good after a price change
Inelastic Demand: If you buy the same amount or just a little less/more after a price change (unresponsive)
So once again the general themes of Demand and its change are:
Availability of Substitutes
Relative Importance (subjective)
Necessities vs. Luxuries
Change over Time
The amount of product offered for sale at all possible prices that could prevail in the market
Law of Supply
Principle that suppliers will normally offer more for sale at high prices and less at lower prices
Promise of high prices and revenue lures you into business
What is Supply?
What do people supply?
they supply what is best based upon the cost of production of goods and services
And let's not forget, suppliers WANT TO MAKE MONEY
Decisions, decisions, decisions
Why would you decide to make a product or provide a service to someone else?
What can change supply?
Cost of resources (Input Costs)=Change in cost of production inputs (land, labor, capital)
So if these costs increase there is a likely chance that producers will create less of an item the reverse will hold true if the costs of those same inputs decrease
Causes of change in supply
Productivity=Goes up whenever more output is produced using the same amount of input
Goes up if workers work harder (so how do you motivate them?)
Want to produce more at every price
If workers unmotivated, untrained or unhappy then we have a decrease

Causes cont.
Technology
Tends to shift supply up
Lowers production costs
Example-fuel efficiency in jets
BUT can break down, not work correctly etc.
Or could replace more of a variable with less of the variable (example: more robots-less workers)
Causes cont.
Causes continued
Subsidies

Government payment to an individual, business or other group to protect a certain type of economic activity
Lowers the cost of production
Lots of this in farming

Taxes are counted as costs of production

Inventory, fees for licenses, state/federal, property taxes on business locations, tariffs
Expectations
Concern over future issues and prices
Government Regulations
Often change cost of production
This can then alter supply
Number of Sellers
Can flow a lot
Change in tech can also alter this (Internet sellers)
Causes Final
Costs!
I have no money
!
QUESTION: Has there been a time in your life that the substitution effect has impacted you?
Whether your income increases or decreases, it always will by the main reason for why you spend money.

This is why good budgeting is crucial for your overall financial success!
Income can also impact the job you choose

Higher demand jobs tend to have higher salaries or are more available
Current Jobs that are in Demand RIGHT NOW! (According to Fortune Magazine and CBS News)

Truck Driver
Registered Nurse
Customer Service Rep
Sales Reps
Sales Manager
Software Developer/Testers/Quality Assurance/Engineer
Sales Managers
Child Care Workers
Accountants/Auditors
Physician's Assistant
Mobile Developer
Data Scientist
Engagement Manager



Question: How does the law of supply seem different than the Law of Demand? How can these two laws possibly work together?
Perhaps the key issues within supply is COST!
Fact: every business must put up money first to provide their goods/services.
So, technically every business is starting in debt.
Therefore, a business must try to keep its costs down to increase its profit.
LABOR
Labor is a huge cost
Everything done in a business is done by someone and that someone normally needs to be paid
Things like salary, medical benefits, investment benefits, training etc.
When you hire workers you have to ask yourself; "will this person help me make money?"

This is referred to as marginal product and return

If I add a person to may staff how much increased productivity will I get (product)?

If I add a person to my staff how much increased revenue (profit) will I get (return)?
Bills, bills, and yes bills

We often seem to forget that businesses pay bills

Fixed Costs: these are regular items that typically cost the same every month/year (mortgage/rent, internet, phone, website, trash disposal, water/sewer)

Variable Costs: these are irregular and could change quickly (raw materials, electric/heat bill, salaries, medical benefits, upkeep and repairs, landscaping, snow removal)


Why do you need to know this?
Businesses must know where each and every cent goes if they want to make money
By studying their costs they can find ways to reduce them or anticipate possible increase in the future

You will be able to do this in your own life by creating a monthly budget.
The 2016 Fortune Best Companies to Work For
1. Airbnb-lodging

2. Bain and Company-consulting/solutions

3. Guidewire-financial software

4. Hubspot-sales softwar

5. Facebook-social media

6. LinkedIn-social media

7. Boston Consulting Group-consulting/business strategy

8. Google-search, tech

9. Nestle Purina Pet Care-Pet Care/food etc.

10. Zillow-real estate search

Have you ever wondered why everything has either corn or soy in it?
Name something you have bought or really wanted to buy because of the product's advertisement.
This is the largest residence in New Jersey. This home belongs to Vernon Hill the founder of Commerce Bank (now TD Bank)
Write down two things that you have bought that resulted in unhappiness.

What impact did that unhappiness have on you?
Full transcript