Supply and Demand for Goods and Services

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                            Price - Supply and Demand

Relates to Steps 4-6 of determining price

Business must take into account the Laws of Supply and Demand when determining
how much they can charge for their product.

Demand – based on consumer needs and wants for goods and services

Supply – businesses provide the goods and services that consumers need and want




                                                            (a)


                                                    (b)




Laws of Supply and Demand:

 When demand for a product increases and supply stays the same, the price will
  rise because more consumers are competing to buy the same product (a)
 When demand for a product decreases and supply stays the same, the price will
  decrease (b)

 When supply of a product increases and demand stays the same, the price will
  decrease because there is more of the product to be sold to the same number of
  consumers
     o The reverse is also true – when supply decreases, price increases

 Businesses must raise and drop the prices of their goods in order to keep sales at a
  high, but steady level
 If prices are too high, their products will not sell very well
 If prices are too low, their products will sell quickly, but the company could have
  made more money – many of the consumers would have still bought the product,
  even at a higher price.
 Therefore, higher profits can be attained in both situations
 Businesses must find the price that will make them the most profit



Price – Supply and Demand
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posted:11/30/2011
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