Marketing & Economics Chapter 3 “Genius is 1% inspiration and 99% perspiration. Accordingly a genius is often merely a talented person who has done all of his or her homework.” ~Thomas Edison~

What is an economy? Economy or Economic System Resources Scarcity Organized way a nation provides for the needs and wants of its people Resources Factors of Production Land Labor Capital Infrastructure Physical development of a country Entrepreneurship Scarcity Difference between needs and wants and available resources

How does the economy work? Economic systems answer 3 questions Which goods and services should be produced? How should the goods and services be produced? For whom should the goods and services be produced?

Types of Economies Traditional Market Command Type of Economy Which goods and services are produced? How should the goods and services be produced? For whom should the goods and services be produced? Traditional Example - Burma& Ivory Coast Little Choice Based on family traditions Based on family tradition Family tradition dictates who buys and sells and where the exchange takes place. Market United States Consumers Decide Business decides People who make money are able to buy Command China & Cuba One person or group of government Government runs business Government decides who receives what is produced

Types of Economies Mixed Economies The US is a MIXED Economic System Food and Drug Administration Labor Laws Medicare Can a 15 year old work after 7 PM on a school night? http://www.youthrules.dol.gov/know-the-limits/14-15.htm

Types of Economies Economic System Political System Market Economy Command Economy Market & Command Political System Capitalism Communism Socialism

Political Systems Types Type of Economy Business Characteristics Government Involvement Other Characteristics Capitalism Example - Japan & United States Marketplace competition and private ownership of businesses Concerned about its people and care for those who cannot care for themselves Government is typically a democracy, power is with the people Communism Cuba & North Korea No private ownership of property or capital Authoritarian controls all production – goods are available when needed All who can work are assigned jobs; medical care is free; no financial incentives Socialism Canada & Germany Government runs key industries and makes economic decisions Most have democratic institutions; meet the needs of all and employ many More social services at free or low cost; standard of living for everyone; higher taxes for all

The Economy & Marketing An economy has 3 goals Increase productivity Decrease unemployment Maintain stable prices

The Economy & Marketing How is productivity measured? Output per worker Total output divided by number of employees Gross domestic product (GDP) Output of goods and services produced by labor and productivity in a country US GDP was 15.586 Trillion in June 2011 Unemployment Rates # in the labor force divided # unemployed Measures the effect of economic events Unemployment is at 7.8% (October 2012)

The Economy & Marketing How is productivity measured? Gross National Product (GNP) Measures the total dollar value of goods and services produced by a nation, including US citizens and companies in other countries With GNP, it is no where the production takes place but who is responsible for it. GDP is DOMESTIC only (at home). US GNP was 14.01 Trillion in 2011 Standard of living the level of wealth, comfort, material goods and necessities available to a certain socioeconomic class in a certain geographic area GDP or GNP divided by population

The Economy & Marketing Inflation Rising prices Low is good, double digit is bad September, 2012 Inflation was at 2.0% surges in the price of oil, foodstuffs and gold

How Much Did Things Cost in 1964? Some examples of items in 1964 from the American Heritage Magazine “The Cost of Living” article

The Economy & Marketing Measurement Indexes Consumer Price Index Change in prices over time for 400 retail goods and services used by average household Also called Cost of Living Index Producer Price Index Wholesale price index (leads CPI)

The Business Cycle Expansion Economy is flourishing Low unemployment Increase in output of goods and services High consumer spending Good time for new business start up Expands until it reaches a peak End of expansion and beginning of recession

The Business Cycle Recession Period of economic slowdown for 2+ quarters (6months) Companies reduce workforces Consumers have less to spend Producers make less goods and services Business expansion and R&D are put on hold Begins immediately after a peak and ends when it reaches a trough When the economy reaches its lowest point in a recession

The Business Cycle Depression A period of prolonged recession Nearly impossible to find a new job; unemployment high Many businesses forced to close Consumer spending is very low Poverty results; The Great Depression of the 1930’s

The Business Cycle Recovery Significant period of renewed economic growth following recession or depression GDP begins to increase; more production People find jobs Demand for goods increases Where the cycle begins again

The Business Cycle Expansion Recovery Recession Trough Unemployment is low and consumer spending is high; businesses prosper; peak marks the end of this phase Expansion The economy slows; businesses lay off workers; consumer confidence is low; depression is a long period of recession The economy begins to grow again; jobs are created and consumers begin to spend; may last a long time Recovery Recession Trough Low point; making way to recovery economy stops slowing and signs of a recovery appear

The Business Cycle

Recession Marketing Marketers must be creative and consider the economic status when selling goods and services