Needs, Wants, and Demands

Needs

• Needs are states of self-deprivation in an individual.
• Marketing starts with human needs.
• Human needs can be physiological, social, cultural, and individual.
• New inventions aim to satisfy human needs.
• Physical needs include food, clothing, shelter, safety, and water.
• Social needs include belonging and affection.
• Individual needs include knowledge and self-expression.

Wants

• Wants are desires for specific satisfiers of needs.
• People desire different products, services, and methods to satisfy unlimited needs.
• Wants depend on culture, social class, and individual personality.
• Marketers can influence wants by providing various need-satisfying objects.

Demands

• Demands are human wants backed by the ability and willingness to buy.
• People want goods that provide maximum satisfaction.
• Marketers influence demand by offering products at different prices and qualities.
• Demand is the amount of product customers are ready to purchase at a given price and time.
• Conditions of demand: desire for a commodity, purchasing power, and willingness to pay.

Supply

• Supply is the amount of a commodity sellers are able and willing to offer for sale at a certain price and time.

Law of Demand

• The law of demand states that if other factors remain constant, as the price of a product decreases, consumer demand for the product increases, and vice versa.
• This is a microeconomic principle.

Demand Schedule

• A demand schedule is a table showing a range of prices for a good or service and the quantity demanded at each price.
• As the price of gasoline increases, the demand for gasoline falls, and as the price decreases, the demand for gasoline increases.

Law of Supply

• The law of supply states that if other factors are equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa.
• This is a macroeconomic principle.

Supply Schedule

• A supply schedule is a table showing a range of prices for a good or service and the quantity supplied at each price.
• As the price of gasoline increases, the supply increases from the suppliers' end, and as the price decreases, the supply also decreases from the suppliers' end.

Demand Curve

• The demand curve is a graphical representation of the relationship between price and quantity demanded for a good or service.
• Quantity is on the horizontal axis, and price is on the vertical axis.
• Demand curves slope down from left to right.

Supply Curve

• The supply curve shows the relationship between price and quantity supplied on a graph.
• Quantity supplied is on the horizontal axis, and price is on the vertical axis.
• Supply curves slope up from left to right and illustrate the law of supply.

Equilibrium

• Equilibrium is where demand and supply intersect.
• Demand and supply determine the price and quantity bought and sold in a market.
• The point where the supply and demand curves cross is called the equilibrium.
• The equilibrium price is where the quantity consumers want to buy equals the quantity producers want to sell.
• The common quantity is called the equilibrium quantity.
• At any other price, the market is not in equilibrium.

Excess Supply (Surplus)

• At any price above equilibrium, the quantity supplied exceeds the quantity demanded.
• This accumulation puts pressure on sellers to cut prices

Excess Demand (Shortage)

• When the price is below equilibrium, there is excess demand or a shortage.
• Buyers may find stations running short of fuel, leading companies to realize they can raise prices for higher profits.

Key terms

• The demand curve is a graphic representation of the relationship between price and quantity demanded.
• The demand schedule is a table showing a range of prices and the quantity demanded at each price.
• Demand is the relationship between price and the quantity demanded.
• The equilibrium price is where quantity demanded equals quantity supplied.
• The equilibrium quantity is the quantity at which quantity demanded and quantity supplied are equal.
• Equilibrium is the situation where quantity demanded is equal to quantity supplied.
• Excess demand (shortage) is a situation where quantity demanded exceeds quantity supplied.
• Excess supply (surplus) is a situation where quantity supplied exceeds quantity demanded.
• The law of demand states that a higher price leads to a lower quantity demanded, and vice versa, while other variables are held constant.
• The law of supply shows that a higher price leads to a greater quantity supplied, and vice versa, while other variables are held constant.
• The quantity demanded is the total number of units consumers are willing to purchase at a given price.
• The quantity supplied is the total number of units producers are willing to sell at a given price.
• The supply curve is a line showing the relationship between price and quantity supplied.
• The supply schedule is a table showing a range of prices and the quantity supplied at each price.
• Supply is the relationship between price and the quantity supplied.

Market (Traditional Definition)

• A market is a place of regular gathering for the purchase and sale of provisions, livestock, and other commodities.

Market (Marketing Definition)

• A market is the set of actual and potential customers of a product.

Market (Economics Definition)

• A market is a mechanism through which the price of products is determined by the bargaining of buyers and sellers.

Types of Market (Based on Economics Point of View ):

• Imperfect competition.
• Perfect competition.

Types of Market (Based on Traditional Point of View)

• Local.
• National.
• International.

Types of Market (Based on Marketing Point of View)

• Consumer market.
• Industrial market.

Imperfect Competition Classifications

• Monopoly: one seller.
• Duopoly: two sellers.
• Oligopoly: few sellers.
• Monopolistic: many sellers.

Utility

• Utility is the capacity of a product to satisfy needs.
• It is the inner power of the product for which customers pay.
• The utility of food is to remove hunger, and the utility of water is to remove thirst.

Consumption

• Consumption means finishing or destroying the utility of a product through use by consumers.
• It is the process of utilizing the utility of products.

Consumer Surplus

• Consumer surplus is the difference between what consumers are willing to pay and what they actually pay (market price).
• Consumer surplus = willingness to pay price - market price.

Producer Surplus

• Producer surplus is the difference between the market price and the economic cost to produce a product.
• Producer surplus = market selling price - economic cost.

Total Surplus

• Total surplus measures total economic welfare by adding consumer surplus and producer surplus.
• Total surplus = consumer surplus + producer surplus.
• Total surplus = willingness to pay price - economic cost.
• Economic costs include the seller's cost of materials, labor, and opportunity cost.

Law of Diminishing Marginal Utility

• Commodities become less valuable as more of them are required.
• Every successive unit gives utility with a diminishing rate.
• Marginal utility diminishes constantly as a person takes successive units of a commodity.
• Marginal utility may decrease into negative utility.
• Consumers are willing to pay smaller dollar amounts for more of a product as its utility decreases.

Price vs. Value

• Price is the amount paid to get something.
• Value is the amount of satisfaction obtained from a product.
• Value is the extent to which a good or service is perceived to meet needs or wants.
• Value depends more on the customer's perception of worth than intrinsic value.

Gross National Product (GNP)

• GNP is the total monetary value of all final goods and services produced by a country's citizens within and outside the country in a year.
• GNP = C + I + G + (X - M)
  • C = Consumption
  • I = Investment
  • G = Government spending
  • X = Export
  • M = Import
  • (X - M) = Balance of trade

Gross Domestic Product (GDP)

• GDP is the total market value of all final goods and services produced within a country in a year by factors of production located in the country.
• GDP is obtained by subtracting net foreign income from abroad from GNP.

Factors of Production and Their Incomes

• Land: rent.
• Labor: wages.
• Capital: interest.
• Organizer: profit.

National Income

• National income is the sum total of all income payments made to the factors of production (factor cost view).
• Components of national income: rents, compensations to employees (wages), interest, and profits.

Per Capita Income

• Per capita income shows the average level of income earned by the people of a country in a specific time period.
• Per capita income is the ratio of the national income and the total population of a country.