A Review of Marketing

What is Marketing? Marketing is much more than advertising and selling Marketing is much more than advertising and selling For individual organizations, marketing is all decisions and activities involved in getting and keeping customers For individual organizations, marketing is all decisions and activities involved in getting and keeping customers

The Scenario The Location The Location Utopinasia Utopinasia The Characters The Characters David and Hugo David and Hugo David and Hugo make their own clothes David and Hugo make their own clothes The Props The Props Shirts and Pants Shirts and Pants

Working Life in Utopinasia David spends all his day making pants - 6 per day David spends all his day making pants - 6 per day David spends all his day making shirts - 6 per day David spends all his day making shirts - 6 per day Hugo spends all his day making pants - 6 per day Hugo spends all his day making pants - 6 per day Hugo spends all his day making shirts - 10 per day Hugo spends all his day making shirts - 10 per day

If Hugo and David each spend half their time on pants and half on shirts, and can produce half the goods in half the time, they will produce: Shirts Pants Shirts Pants David’s production33 Hugo’s production53 Total Production 86 When Comparative Advantages in production exist, total production will be higher if everyone specializes in their areas of comparative advantage.

Comparative Advantage: The Basis for Exchange Absolute Advantage Hugo has absolute advantage in shirt production (10/6) Hugo has absolute advantage in shirt production (10/6) Neither person has absolute advantage in pants production (6/6) Neither person has absolute advantage in pants production (6/6) Comparative Advantage David has comparative advantage in pants production David has comparative advantage in pants production David - ratio of pants to shirts = (6/6) = 1.0 Hugo - ratio of pants to shirts = (6/10) = 0.6 Hugo has comparative advantage in shirt production Hugo has comparative advantage in shirt production David -ratio of shirts to pants = (6/6) = 1.0 Hugo - ratio of shirts to pants = (10/6) = 1.6

Total Production in Utopinasia If Hugo and David completely specialize in their area of comparative advantage, they will produce: If Hugo and David completely specialize in their area of comparative advantage, they will produce: Shirts Pants Shirts Pants David’s production 06 Hugo’s production100 Total Production(+2)106

Principles of Economics Illustrated 1. Comparative advantage in production motivates specialized production (to achieve higher total production) BUT ….

Principles of Economics Illustrated Comparative advantage in production motivates specialized production (to achieve higher total production). Comparative advantage in production motivates specialized production (to achieve higher total production). Specialized production results in “discrepancies of assortment” which must be resolved through trade. Specialized production results in “discrepancies of assortment” which must be resolved through trade.

Comparative Advantage: The Basis for Exchange What will Hugo and David need to do for the trade to take place? What will Hugo and David need to do for the trade to take place?

Market-Making Activities Marketing Activities Marketing Activities Communication Communication Transportation Transportation Storage Storage Negotiation Negotiation What factors affect the cost of these activities? TRADING COSTS

Let’s Put David and Hugo on Separate Islands How do the marketing activities change? How do the marketing activities change? What factors will have to be considered in trading shirts and pants between international markets? What factors will have to be considered in trading shirts and pants between international markets?