The concept of this website is to apply real business practical and theoretical concepts to the online marketing industry. The reader should have a general understanding of economic market basics in order to fully understand the ideas and concepts of the website. In this section I will overview the foundation of market economics and then in the next section, The Online Advertising Market, I will bring these concepts into the Internet marketing realm and translate them to fit the overall topic of this website.

Basic Market Components

Essentially there are four market economic topics that need to be understood before going forward. These are supply, demand, price, and elasticity. After reviewing each topic I will briefly discuss the interactions between them and then it’s on to online marketing versions and specifics.

Supply

Supply is the amount of goods or services a producer is willing and able to produce and make available for sale at various prices over a specified period of time.

Demand

Demand is the amount of goods or services a consumer is willing and able to purchase at various prices over a specified period of time.

Price, Bids, Asks

I think we all know what a price is, so let me touch on bids and asks. The bid is the price a consumer is willing to pay for a particular product or service and the ask is the price a producer would like to receive for a particular product or service. The “bid-ask spread” is the difference between the bid and the ask and is the fundamental reason why business gets done. If there were no bid-ask spread that would mean that a given product would be bought and sold at the same price and nobody could capture a profit. A collective sum of products manufactured to make another product would be sold at the sum of the purchase price of its parts, again leaving no profit.

Elasticity

Elasticity is a little stickier but I will attempt to simplify the concept here. If a particular product, let’s say DVDs, were priced at $50 each, how many DVDs would people buy? What would be the size of an average person’s DVD collection? We can’t actually answer those questions but the concept of elasticity is made clearer by establishing a comparison between the $50 DVD scenario and a $4 DVD scenario. How many DVD’s would people buy if they were all priced at $4? What would the average collection size be? Again, we can’t answer those questions specifically but we can say with a fair degree of confidence that the second scenario, where DVDs are $4, would result in people buying more DVDs and the average person’s DVD collection being much larger than in the $50 scenario. This is the concept of elasticity and essentially measures the relationship between price and supply and demand. As prices drop, more goods and services will be consumed. However, due to shrinking profits, less goods and services will be produced. A good is said to be “elastic” if the amount demanded by consumer’s changes with price changes. In the case of DVDs, the relationship between demand and price is elastic. An example of a product that may be less elastic is basic consumer utilities such as electric. There is some elasticity, but essentially consumers need a certain amount of electricity and it would take drastic price movements to change the normal consumption habits of electricity consumers. Electricity is less elastic than DVDs.

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