marketing begins with economics chapter 3 the marketing department – harrison high school

Marketing Begins With Economics Chapter 3 The Marketing Department Harrison High School

The Importance of Economic Understanding Effective marketing is more than just being creative in advertising. Marketing is more scientific than creative. Marketing relies on an understanding of basic economic principles and concepts. Effective marketing requires an understanding of competition.

A study of economics begins with the basic economic problem of scarcity. People have unlimited wants and needs, but economic resources are limited. Scarcity is the combination of unlimited needs and wants with limited resources. Scarcity forces people and businesses to make economic choices. The Basic Economic Problem Frameworks 4.4

Three Basic Economic Questions All economies must answer the 3 basic economic questions of What goods and services will be produced? How will they produced? For whom will they be produced? A countrys economic system is classified based on how the country satisfies needs and how resources are distributed. Controlled/Command Economy the government answers the questions. Free/Market Economy the individuals interact in the marketplace to answer the questions. Mixed Economy all economies are mixed. Frameworks 4.1

Americas Private/Free Enterprise Economy Private/Free Enterprise is based on independent decisions by businesses and consumers with limited government regulation. Characteristics of Private Enterprise The market answers the three economic questions. Resources are owned by individual producers. Competition (a rivalry between 2 or more businesses) exists in the marketplace. The profit motive encourages businesses to efficiently provide products, at a profit, that consumers need & want. Consumers cast their economic vote when they decide what to purchase. Consumers place their individual value, or view on the worth, of a product or service. Government stays out of the exchange unless individuals or society will be harmed. The democratic form of government is most closely associated with this type of economy. Frameworks 4.1

Role of the Government in Our Private/Free Enterprise Economy To provide services to its citizens. To support businesses and the growth of business. To regulate trade to protect consumers and workers. To promote competition in the marketplace.

Private/Free Enterprise Private/Free Enterprise is also known as Capitalism. Demand refers to the quantity of a product consumers are willing and able to purchase at a given price. Supply refers to the quantity of a product that producers are willing and able to produce at a given price. Adam Smith wrote a book called The Wealth of Nations in 1776 that advocated Capitalism. Frameworks 4.1

Controlled/Command Economy The government answers the three economic questions. Communism is the political system in which the government owns and operates everything. This type of economy tends to have very poor infrastructure refers to the condition of the countrys roads, ports, sanitation facilities, and utilities. North Korea is a good example of a controlled/command economy. Frameworks 4.5

North Korea North Korea has the fifth-largest army in the world. North Korea has the highest percentage of military personnel per capita of any nation in the world. North Korea has a highly centralized controlled/command economy. North Korea is one of only two (along with Cuba) with an entirely government- planned, state-owned economy. North Korean children are up to 5 inches shorter and up to 14 pounds lighter than children who were brought up in South Korea. Adult men are 4 inches shorter and women are 2.5 shorter. Malnutrition in North Korea is blamed for the height difference. Watch video about North Korea hosted by Dan Rather of 60 Minutes. Frameworks 4.5

The United States government is involved in the economy through laws and regulations governing businesses, and provides socialistic programs such as Medicaid for the economically disadvantaged and Medicare for the elderly. Mixed Economies ARKids First health insurance provides two coverage options for more than 70,000 Arkansas children who otherwise might have gone without. ARKids A offers low- income families a comprehensive package of benefits. ARKids B provides coverage for families with higher incomes. We have streamlined the application process for both packages, allowing you to apply for either package on the same form. Governor Mike Huckabee signs ARKids legislation. Frameworks 4.5

Mixed Economies All economies in the world today are mixed. There is some government involvement in all economies. The government is the largest consumer of goods and services in the U.S. Frameworks 4.5

Government Supports/Regulates Business in Our Private/Free Enterprise System The Federal Emergency Management Agency (FEMA) provides disaster assistance to help both businesses and homeowners rebuild after disasters. The Small Business Administration (SBA) provides counseling and educational materials to support businesses. www.sba.gov The Securities and Exchange Commission (SEC) regulates the sale of stocks and bonds. The Occupational Safety and Health Administration (OSHA) regulates the workplace to ensure safe working conditions. The Environmental Protection Agency (EPA) regulates business practices to promote a cleaner environment. Cars built after 1974 were required to use unleaded gasoline only and reduced the level of lead in peoples blood. The Equal Employment Opportunity Commission (EEOC) regulates businesses to protect employees from discrimination.

Government Involvement The American Recovery and Reinvestment Act of 2009 is an economic stimulus package enacted by Congress and signed into law by President Barack Obama on February 17, 2009. The Act was intended to provide a stimulus to the U.S. economy in the wake of the economic downturn. The Act was worth as much as $787 billion. President Obama signs into the law the American Recovery and Reinvestment Act, commonly known as The Stimulus.

Government Involvement The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase assets and equity from financial institutions in order to strengthen the financial sector. TARP allows the United States Department of the Treasury to purchase or insure up to $700 billion of "troubled" assets. It was the largest component of the government's measures to address the subprime mortgage crisis. The cartoon above reflects the view of many Americans concerning the TARP law, commonly called The Bailout.

Privatization Vs. Nationalization Privatization is the act of the government selling or converting any of its businesses to be run by private individuals. Nationalization is the act of taking an industry, business, or other private assets into government ownership.

The Business Cycles Business cycles are constant changes and ups and downs in economic growth. A government influences business cycles through its policies and programs. When taxes are raised, businesses and consumers have less money with which to fuel the economy. The government may reduce interest rates, cut taxes, or institute federally funded programs to spark a depressed economy. Trough the low point of a recession just before recovery begins. Peak the high point of an economic recovery. Frameworks 4.9

The Phases of the Business Cycle Prosperity is a period of economic growth and expansion. Nationwide there is low unemployment, an increase in the output of goods and services, and high consumer spending. Recession is a period of economic slowdown. Unemployment begins to rise, fewer goods and services are produced, and consumer spending decreases. Recessions usually last 6-8 months, cut can last for a long period of time. Depression is a period of prolonged and deep recession. Consumer spending is very low, unemployment is very high, and production of goods and services is down significantly. Poverty results because many people are out of work and cannot afford to buy food, clothing, or shelter. The Great Depression of the early 1930s best illustrates a depression. Recovery is a period of renewed economic growth following a recession or depression. Recovery is characterized by reduced unemployment, increased consumer spending, and moderate expansion by businesses. Periods of recovery differ in length and strength. Frameworks 4.9

Depression A long and severe drop in the Gross Domestic Product. The Great Depression that began in 1929 left many Americans homeless and standing in line at soup kitchens. Frameworks 4.9

Economic Measurements Productivity is output per worker hour. Gross domestic product is a measure of the goods and services produced using labor and property located in a country. Inflation refers to rising prices. A low inflation rate (1-5 percent) shows that an economy is stable. The Consumer Price Index (CPI), also called the cost-of-living index, measures the change in price of some 400 retail goods and services used by the average urban household. The Producer Price Index (PPI) measures wholesale price levels in the economy. Increases often get passed along to the consumer. The Consumer Confidence Index (CCI) measures consumer confidence about personal finance, economic conditions, and buying conditions. The higher the unemployment rate, the greater the chances of an economic slowdown. The lower the unemployment rate, the greater the chances of an economic expansion. Frameworks 4.8

Observing The Laws Of Supply And Demand Economics operates on two levels: Macroeconomics studies the economic behavior and relationships of an entire society. Microeconomics examines relationships between individual consumers and producers. Microeconomics also studies how individuals make decisions about what to produce and what to buy. Marketers are primarily concerned about Microeconomics. Factors Affecting Demand How strong is the need or want for that product? Is the supply of the product large or small? What is the availability of alternative products that will satisfy the need?

Observing The Laws Of Supply And Demand Analyzing Demand Curves A demand curve is often illustrated by a graph that illustrates the relationship between price and the quantity demanded. Law of Demand When the price of a product is increased, less will be demanded. When the price is decreased, more will be demanded. Frameworks 4.6

Demand Curve for Movies Price $10.50 9.00 7.50 6.00 4.50 3.00 1.50 1,000 Quantity 2,0003,0004,0005,0006,0007,000 Frameworks 4.6

Supplying the Product Businesses operate to make a profit and will prefer to supply more of those products that offer the greatest profit potential. Frameworks 4.6

Economic Resources Land/Natural Resources anything in its natural state oil, natural gas, coal, trees. Capitol Resources money, tools, and equipment needed for production of products or services. Labor/Human Resources employees of the business. Entrepreneurship the individual who takes the risk of owning and operating the business. Frameworks 4.2

Buying Economic Resources What country is the largest trading partner for the United States? 1. Canada: $ 518.10 2. China: $ 345.45 3. Mexico: $ 315.59 4. Japan: $176.30 5. Germany: $129.73 6. United Kingdom: $ 97.22 7. South Korea: $ 71.70 8. France: $ 62.03 9. Saudi Arabia: $ 59.32 10. Brazil: $ 54.14

The Oil Sands of Alberta Theres an oil boom going on right now. Not in Saudi Arabia or Kuwait or any of those places, but 600 miles north of Montana. In Alberta, Canada, in a town called Fort McMurray where, in the dead of winter, the temperature sometimes zooms up to zero. Where Black Gold And Riches Can Be Found In The Sand Frameworks 4.2

Supplying the Product A supply curve is illustrated by a graph that illustrates the relationship between price and quantity supplied. The Law of Supply When the price of a product is increased, producers will prefer to produce more of that product. When the price is decreased, less will be produced. Frameworks 4.6

Price $105 90 75 60 45 30 15 10,000 Quantity 20,00030,00040,00050,00060,00070,00080,000 Supply Curve for Cell Phones Frameworks 4.6

Price $2,100 1,800 1,500 1,200 900 600 300 100 Quantity (in 000s) 200300400500600700800 Demand Supply Market Price Intersecting Supply & Demand The Market Price is found when supply and demand curves meet. AKA Equilibrium Point Supply and Demand Curves for Laptop Computers Frameworks 4.6.2

Surplus Vs. Shortage Surpluses of goods occur when supply exceeds demand. When this happens, businesses respond by lowering their prices in order to encourage people to buy more of the product. AKA a buyers market. When demand exceeds supply, shortages of products occur. When shortages occur, businesses can raise prices and still sell their merchandise. AKA a sellers market. Equilibrium exists when the amount of product supplied is equal to the amount of product demanded. Jingle all the Way was released in December, 1996. Frameworks 4.6.1

Types Of Economic Competition In pure competition, many suppliers will offer very similar products even the same products. All cattle farmers are competitors with each other. But they rarely view themselves that way. Why? Individually, they have virtually no influence on the price they receive for their product pure competition.

Types Of Economic Competition A monopoly is a type of market in which one supplier offers a unique product and has exclusive control of the market. Some regulated monopolies are allowed to exist because it would not make sense to have more than one provider of that product or service. Frameworks 5.4.3

Between Pure Competition & Monopoly In an oligopoly a few businesses offer very similar products or services. The cost of starting a new business in this situation is extremely high usually there will be no new competitors. If these businesses work together (collusion) they will have created an illegal monopoly. In an oligopoly if one business increases or lowers price, the other businesses will usually match the competitor's new price. If they compete with each other based on price, prices will be lowered to a point where the business may become unprofitable.

In monopolistic competition, there are many firms competing with products that are somewhat similar. This is the most common type of competition facing businesses today. A business in this situation will have little control in the marketplace, as they will usually be forced to stay in line with their competitors. However, the greater the differences among products and services, the more control the business will have over its pricing strategy. Business will strive to have products and services that are better than, and different from, competitors. Between Pure Competition & Monopoly

Monopolistic Competition

Avoiding Monopolistic Competition The term blue ocean refers to all the industries not in existence todaythe unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. The term blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored.

How much would you pay to see a circus act like those found at Ringling Brothers and Barnum and Bailey? A ticket can cost as little as $12.

How much would you pay to see a Cirque Du Soleil show? The ticket price is $125 - $150 for a Cirque Du Soleil show in Las Vegas. The traveling shows have prices ranging from a low of $69 to a high of $250. http://www.cirquedusoleil.com/ en/shows/ka/tickets.aspx

Why is Cirque Du Sloeil successful? Traditional circuses, that feature animal acts and clowns, have been on the decline for many years. Cirque Du Sloeil (headquartered in Montreal, Canada), avoided monopolistic competition and created a Blue Ocean. Watch video from 60 minutes program.

Utility Means Satisfaction Economic utility is the amount of satisfaction, or value, a consumer receives from the consumption of a particular product or service. Businesses use economic utility to increase the chances that consumers will buy their products or services. The four types of utility: Form Utility, Time Utility, Place Utility and Possession Utility. Frameworks 4.3

Form Utility Type of utility created by changes in the form or shape of a product to make it useful. Frameworks 4.3.1

Place Utility Created by having a good or service at the location where it is needed or wanted Frameworks 4.3.1

Time Utility Created when a product or service is available when it is needed or wanted by consumers Frameworks 4.3.1

Possession Utility Created when ownership of a good or service is transferred from one person to another, but it may also occur through renting or borrowing. Finding ways to finance, rent, or lease products has become an important business activity. Frameworks 4.3.1

marketing begins with economics chapter 3 the marketing department – harrison high school

Documents

economic resources

basic economic questions

economic choices

economic vote

controlledcommand economy

mixed economy

type of economy

countrys economic system