Marketing Begins with Economics Chapter 3 Economics a

Marketing Begins with Economics Chapter 3

Economics �a science concerned with the process or system by which goods and services are produced, sold, and bought

Wants and Needs � Wants and needs are unlimited � Having limited resources leads to scarcity � Can lead to shortages (no resources) � 3 types of resources • Land – natural resources used to make a product or offer a service • Labor – people who are paid to make the product or complete the service • Capital – building, material, equipment used to make the product/service

Who makes the decisions Who owns the resources: • Controlled economy—government • Regulated economy—shared between the government and other groups or individuals • Free economy—individuals • Mixed economy—shared by government and private enterprise

3 Economic Questions �Who should it be produced for? �What should be produced? • Profit Motive: use of resources for the greatest profit. �How should it be produced?

America’s Private Enterprise Economy Characteristics �Resources are owned by individuals �Producers use the profit motive �Consumers make decisions about what will be purchased �Consumers use value in deciding what to consume �The gov. stays out of exchange activities unless the consumer is harmed

America’s Private Enterprise Economy � Consumers: Individuals who purchase products and services • Demand: relationship between the quantity of a product and price � Producers: businesses that use the resources to produce products and services • Supply: relationship between the quantity of a product and price � Government: enacts laws and regulations to help those who are treated unfairly

Types of Economies �Traditional �Market �Centrally �Mixed Planned

Traditional �Sons do what fathers do �Little technology �Focus on community �Usually agricultural based �Amish

Free Market � Specialization � Laissez Faire � Consumers � Producers � Factor Market � Product Market � Self Regulating Marketplace � Invisible Hand • Self-Interest • Competition

Centrally Planned �Government control �Socialism – distribute wealth evenly �Communism – small group controls wealth

Mixed/Modern �Combines aspects of other 3 economies �Not all mixed economies are the same

U. S. Economy �U. S. is an example of mixed economy �U. S. also known as Private Enterprise System

Economics �Microeconomics-relationship between individual consumers and producers �Macroeconomics-behavior and relationships of the entire economy �Supply-amount available �Demand-amount desired

Law of Demand �As price goes down, demand goes up, and as price goes up, demand goes down

The Demand Curve Q P �Limit to the Demand Curve • Does not show outside factors �Weather �Location �Etc.

Factors Affecting Demand � Income � Consumer Expectations � Population – age groups � Consumer Taste and Advertising � Availability of Substitutes � Relative Importance � Necessity vs. Luxury � Change Over Time

Law of Supply �As price goes up, supply goes up, as price goes down, supply goes down

Supply Curve Q P

Factors Affecting Supply �Input Costs • Effects of Rising Costs • Technology �Government Influence • Subsidies • Taxes • Regulation �Other Influences • Future Expectation of Prices • Number of Suppliers

Combining Supply and Demand �Market Price – point where supply and demand meet (Equilibrium Price) �When supply does not meet demand • Excess Demand – demand is higher than supply • Excess Supply – supply is higher than demand

Supply and Demand O Market Price

Competition � 2 characteristics to determine type of competition 1. Number of firms competing in the market 2. Amount of similarity between the products of competing businesses

Competition Pure Monopolistic Competition Oligopoly Monopoly Number of Producers Many A few dominate One Variety of Goods None Some None Control Over Prices None Little Some Complete Barriers to Entry None Low High Complete

Economic Utility �Amount of satisfaction a consumer receives from a product/service �Businesses use utility to increase the chances of consumer buying their product/service � 4 types of utilities

4 Types of Utilities �Form Utility-physical product or service, changes in the tangible parts of the product/service �Time Utility-product/service’s availability when the consumer wants it �Place Utility-product/service available where the consumer shops �Possession Utility-affordability of product/service. Price/Financing/Credit