market and market forces

What is a Market?

A market exists when buyers and sellers communicate to exchange goods and services. The term ‘market’ describes the trade that takes place in an industry.

Definition of Demand

Demand is the amount of a product that consumers are willing and able to purchase at any given price. Demand is concerned with what consumers are actually able to buy rather than what they would like to buy.

Definition of Supply

Supply is the amount that producers are willing and able to sell at any given price.

• It refers to the quantity of a good or service that will be offered for sale at a particular price in a particular time period.

Law of Demand

The law of demand is that, generally, the lower the price the more will be demanded per

time period.

• The quantity demanded is likely to be higher at lower prices.

• There is an inverse relationship between the price of a good and the quantity demanded of that good.

Law of Supply

The law of supply is that generally the higher the price of the good or service, the more will be supplied per time period.

• The quantity supplied is likely to be higher when prices are higher as there is a greater opportunity for producers to make profits.

• There is a positive relationship between the price of a good or service and the quantity supplied of that good or service.

Determinants of Demand

Determinants of demand can either cause a shift or a movement in demand

• A movement along the demand curve will be caused by a change in PRICE.

• Shifts in the demand curve will be caused by a change in factors OTHER THAN PRICE.

Determinants of Supply

A change in the PRICE of a good or service will lead to a change in the QUANTITY SUPPLIED.

• A change in price will cause a movement along the existing supply curve:

• The supply curve itself has not moved.

• A price change only leads to an extension (rise) or contraction (fall) in the quantity supplied.

Factors affecting Demand

THE PRICE OF OTHER GOODS OR SERVICES - Substitutes Goods, Complementary Goods.

TASTES AND PREFERENCES

REAL INCOME - If inflation rises faster than income, real income declines, reducing spending power.

• Normal Goods: As real income increases, demand for luxury items rises, while demand for necessities remains stable.

• Inferior Goods: With higher real income, people tend to buy higher-quality alternatives, leading to a decrease in demand for inferior goods (e.g., cheap clothing or meaT)

  EXPECTATIONS ABOUT FUTURE PRICE RISES

  THE STATE OF THE ECONOMY

  GOVT POLICY AND THE DISTRIBUTION OF WEALTH - The government also adjusts taxation and benefits so affecting people incomes and therefore their demand for goods.

  • A progressive income tax system means that the percentage of income tax payable rises in line with wages.

  • a comprehensive welfare system transfers income from higher earners to lower earners or those who are unable to work or to find work.

    The result is a rise in demand for goods that now come within the range of people who previously couldnt afford them, such as a holiday abroad.

    ADVERTISING

    LEGISLATION

    THE SIZE AND

    STRUCTURE OF THE

    POPULATION

Factors affecting Supply

CHANGES IN THE COSTS OF PRODUCTION

CHANGES OUTSIDE HUMAN CONTRO/ EXTERNAL SHOCKS.

PRODUCTIVITY OF FACTORS OF PRODUCTION

INDIRECT TAXES AND SUBSIDIES

TECHNOLOGICAL ADVANCES

market share

The proportion of the total market held by one company or product. It can be measured by volume but is more often looked at by value.

• Higher sales leading to higher revenue and potentially greater profits

• Highest distribution level; often without effort as all retailers (shops) want to sell the most popular goods

• Easier to obtain distribution and consumer trials for a new product based on the established brand name

location

The geographical territory in which the business trades (or where the market it serves is located)

differentiation of products

The process a business undertakes to ensure that their product/service is sufficiently different from other products/services in order to make it more appealing to customers in a specific target market.

market size

measurement of all the sales by all the companies within a market place in a given time period, normally one year. It can be measured in two ways: by volume and by value.

• It is the basis for calculating market share.

• It also the reference point for calculating trends.

consumer market

Consumer goods are finished goods which are sold to the general public. This type of market is also known as business to consumer (B2C).

• The business must be aware of consumers’ needs and wants through consistent market research.

• They must differentiate their product or use cost advantage to gain competitive advantage.

• They must adapt their marketing mix to meet the demands of the consumer.

capital markets

Capital goods are those purchased by business and used to produce other goods / consumer goods. For example: Tools, equipment, machinery. This type of market is also known as business to business. (B2B)

• The business must change its marketing mix to appeal to other businesses, not directly to consumers.

• They may have to offer credit to businesses.

labour market

The labour market brings together the buyers of labour – the employers – and the sellers of labour – the workers. In this market individuals and households are sellers whereas they are usually buying from businesses.

• Businesses must offer competitive wages and working conditions in order to attract high calibre staff.

• They may have to put training in place if the labour market cannot provide the type of workers management are looking for.

niche market

Where a business targets a smaller sub segment of a larger market, where customers have specific needs and wants.

• High profits can come from small sales volume –high prices can be charged for a highly differentiated and valued product / service

• Lack of competition means higher

  prices can be charge

• Means of gaining market share

• Requires less resources for set up –

  cheaper to establish

• Easier to target and promote to a

  smaller number of customers

• Product can be adapted to suit

  specific requirements

• Lack of economies of scale - higher

unit costs

• Vulnerable to changing tastes

• Lack of customers may affect profits

• May be targeted by larger firms if successful

mass market

Where a business sells into the largest part of the market, where there are many similar products on offer

• Can be highly profitable – sell a high

volume at a low profit margin

• Economies of scale

• Creates brand awareness and loyalty

• Helps fund R&D

• Most expensive methods of marketing can be used – e.g. TV

• A large number of customers leads to large revenues

• High capital costs of setting up large scale production

• Difficult to appeal to specific customers

• Vulnerable to changes in demand