How do market forces shape organizational responses?
In economics or business in general market forces would refer to the forces of demand and supply affecting the price and quantity of items. Organizations focus their operations on trying to understand, predict and at times influence the demand of their services or products. As stated the market forces will affect the price and organizations will work to ensure there is benefit in such an impact. For instance, if demand for a product is high then the organization would seek to increase their price in line with the demand, eventually increasing the equilibrium price. The assumption in this case is that supply is held constant. If the opposite occurs whereby the supply increases then the organization would be required to reduce their prices to maintain or increase their revenues and guarantee profitability, in this case assuming demand remains constant. In summary, market forces will affect organizational response with regard to production, pricing, competition, profitability and their promotion activities among other business variables.
Market forces affect organizational responses in many ways. Market forces include things such as supply, demand, and marketing to consumers.
Supply is the amount of goods or services available in a market. Demand is the number of goods or services desired in the market. For example, a new soda may be placed into the market. The supply of the soda is greater than the demand of the soda. Thus, supply and demand have an inverse relationship. Organizations want to reach a point called equilibrium where supply and demand are equal. This is the ideal point in the market. Supply and demand are also measured by price.
Marketing is an activity that can change the equilibrium point in supply and demand. Marketing can increase the deman of a good or service, thereby shifting the equilibrium. That is the point where supply and demand meet the consumers' needs.