Chapter 3: Marketing Begins with Economics Mrs. Piotrowski Marketing

Scarcity & private enterprise SECTION 1: Scarcity & private enterprise

Make a list of your last 5 purchases. How did the availability of product choices and amount of money affect your purchasing decision?

The Importance of Economic Understanding Many people believe that effective marketing relies almost solely on creativity, but… The marketing process is scientific… It relies on the principles and concepts of economics. Knowledge of economics and how economic decisions are made improves marketing decision making. An understanding of the types of competition that businesses face also contributes to better marketing decisions.

The Basic Economic Problem People’s wants and needs are unlimited. Resources are limited. Unlimited wants and needs, combined with limited resources, result in scarcity. Scarcity is the basic economic problem… Because of scarcity choices must be made regarding how to best utilize resources.

Who makes decisions? All economies must answer 3 questions: An economy is designed to facilitate the use of limited resources to satisfy the needs of people. All economies must answer 3 questions: What goods and services will be produced? How will they be produced? For whom will they be produced? Economies are organized into different economic systems based on how these 3 questions are answered.

Types of Economic Systems Controlled Economy – The government attempts to own and control important resources and to make the decisions about what will be produced and consumed. Free Economy (Market Economy) – Decisions are made independently with no attempt at government regulation or control. Regulated Economy – The resources and decisions are shared between the government and other groups or individuals. Who answers the economic questions in each of the above economic systems?

America’s Private Enterprise Economy The U.S. has many of the characteristics of a free economy. The U.S. economic system is often called a private enterprise or free enterprise economy. Private enterprise is based on independent decisions by businesses and consumers, with a limited government role.

Characteristics of Private Enterprise Resources of production are owned and controlled by individual producers. Producers use the profit motive to decide what to produce. The profit motive is the use of resources to obtain the greatest profit.

Characteristics of Private Enterprise Individual consumers make decisions about what will be purchased to satisfy needs. Consumers use value in deciding what to consume. Value is an individual view of the worth of a product or service.

Characteristics of Private Enterprise The government stays out of exchange activities between producers and consumers unless it is clear the individuals or society are harmed by the decisions.

Supply & Demand Consumers are individuals who purchase products and services to satisfy needs. They create demand. Producers are businesses that use their resources to develop products and services. They create supply.

Observing the law of supply & demand SECTION 2: Observing the law of supply & demand

What determines the point at which you decide not to buy something? Write down 2 things you have purchased recently…1 need and 1 want…and how much they cost. SOLVE. If each had cost 20% more, 50% more, 100% more, Would you still have purchased them? What determines the point at which you decide not to buy something?

Macroeconomics vs. Microeconomics Macroeconomics studies the economic behavior and relationships of an entire society. Microeconomics examines relationships between individual consumers and producers.

Law of Demand When the price of a product is increased, less will be demanded. When the price is decreased, more will be demanded.

Supplying the Product There are several factors that influence what and how many products a business will produce: Possibility of profit Amount of competition Capability of developing and marketing the products or services The specific types of economic resources (natural resources, capital, equipment, & labor) will determine this capability.

Law of Supply As the price increases, producers will manufacture more of a product. As the price goes down, fewer will be manufactured.

Intersecting Supply & Demand To determine the amount of a product or service that will actually be produced and sold, a business needs to combine the supply and demand curves. The point where supply and demand for a product are equal is known as the market price.

TYPES OF ECONOMIC COMPETITION SECTION 3: TYPES OF ECONOMIC COMPETITION

Make a list of 6 businesses, large and small, that operate here in Orchard Park. SOLVE. Rate the businesses from 1 to 10 based on how much market control you think they have over the prices they charge. Why do you think some businesses have more control over this than others?

Forms of Economic Competition Two characteristics are important to determine the type of economic competition: The number of firms competing in the market. The amount of similarity between the products of competing businesses.

Forms of Economic Competition Pure Competition – Many suppliers offer very similar products (agricultural). Oligopoly – A few businesses offer very similar products or services (airlines). Monopolistic Competition – Many firms compete with products that are somewhat different (most retail businesses). Monopoly – One supplier offers a unique product (utility companies).

Enhancing economic utility SECTION 4: Enhancing economic utility

How could the product be changed? Why would you make these changes? Identify a product in our classroom. SOLVE. How could the product be changed? Why would you make these changes?

Utility Means Satisfaction Economic utility is the amount of satisfaction a consumer receives from the consumption of a particular product. Products that provide great satisfaction have higher economic utility. Products providing less satisfaction have a lower utility. Businesses use economic utility to increase the chances that consumers will buy their products and services.

Types of Utility Form utility results from changes in the tangible parts of a product or service (one bank provides a better interest rate than another). Time utility results from making the product or service available when the consumer wants it (bank stays open late on Fridays).

Types of Utility Place utility is making the products or services available where the consumer wants them (a bank located in the grocery store). Possession utility results from the affordability of the product or service (extending credit to customers to allow them to make a purchase).