1. Essential Standard 5.00
Understand economics

2. Objective 5.01
Understand fundamental economic concepts to obtain a foundation for employment in business.

3. 5.01 Part A Economics Concepts and Activities
Economic Wants and Needs
Economic Resources
Scarcity
Economic Choices
Three Economic Questions
Major Economic Activities

4. Needs and Wants What are needs? What are wants?
Needs are things that are required in order to live
What are wants?
Wants are things that add comfort and pleasure to your life.
Needs are required in order to live.
Wants are things that add comfort and pleasure to your life.

5. Economic Wants and Noneconomic Wants
What are economic wants?
Economic desires are desires items that can be obtained only by spending money.
Examples?
What are noneconomic wants
Noneconomic desires are desires for things that can only be obtained without money.
Economic wants: desires for items that can only be obtained by spending money.
Noneconomic wants: desires for things that can be obtained without money

6. Characteristics of Wants
Unlimited – Everyone always has wants.
Individuals
Businesses
Governments
Changeable – Wants change.
Your wants now compared to 10 years ago
Competing – Everyone must choose
Not enough resources to satisfy all needs
Unlimited: Everyone always has them. That includes individuals, businesses, and governments.
Changeable: Wants change. Think of things that children want vs. what teens wants vs. what adults want vs. what senior citizens want.
Competing: Everyone must choose which wants to satisfy at any one time because resources are limited. We don’t have enough resources to satisfy all needs at the same time.

7. Resources The types of economic resources are:
How do businesses use economic resources to produce goods and services? Economic Resources , also called factors of production, are the means through which goods and services are produced.
The types of economic resources are:
Natural
Human
Capital
Economic resources, also called factors of production, are the means through which goods and services are produced.
Any items that can be used to produce goods and services.

8. Resources (cont.)
What are human resources? People. In economics, they are valued for the physical and mental work they do to produce goods and services. Includes anyone who works.
What are natural resources? Items found in nature that are used to produce goods and services. Ex. Trees, air, and land.
Many natural resources are nonrenewable.
Natural resources: Items that are found in nature that are used to produce goods and services. Examples include trees, air, and land.
Human resources: People. In economics, they are valued for the physical and mental work that they do to produce goods and services. They include anyone who works.

9. Resources (cont.)
What are capital resources? All the manufactured or constructed items that are used to produce goods services (e.g., Building, equipment, transportation systems).
Capital goods: All of the manufactured or constructed items that are used to produce goods and services (e.g., buildings, equipment, transportation systems).

10. Limits to Resources Natural Resources Renewable and Nonrenewable
There simply are not enough resources available to satisfy everyone. We depend on the earth for practically all of our natural resources. As the world’s population increases, there will be more and more people making use of those resources. As a result, there will be fewer resources per person.
Population increase
Some natural resources are difficult or costly to obtain. For example, wind power can be difficult to capture when the wind isn’t blowing. Some developing countries lack the technology to tap their natural resources. And finally, weather conditions and the environment affect the supply of some natural resources
Natural resources: There simply are not enough resources available to satisfy everyone. We depend on the earth for practically all of our natural resources. As the world’s population increases, there will be more and more people making use of those resources. As a result, there will be fewer resources per person. Some natural resources are difficult or costly to obtain. For example, wind power can be difficult to capture when the wind isn’t blowing. Some developing countries lack the technology to tap their natural resources. And finally, weather conditions and the environment affect the supply of some natural resources.

11. Limits to Resources (cont.)
Human Resources
Only some people willing and able to work
Special training
Human resources: Only some of the world’s people are willing and able to work. Others, especially those who are young, disabled, or elderly, are not part of the workforce. Many parts of the world experience worker shortages in such professions as nursing and welding. This may be due to a lack of special training, or the people may not live in the geographic region where the job opportunities exist.

12. Limits to resources (cont.)
Capital Resources
In some parts of the world, capital resources are limited due to a lack of technology. In under-developed societies, people still use primitive hand tools rather than mechanized machinery to produce goods and services. As a result, they produce fewer goods and services than we do in our society and those that they produce are for personal use rather than for capital goods
Capital resources: In some parts of the world, capital resources are limited due to a lack of technology. In under-developed societies, people still use primitive hand tools rather than mechanized machinery to produce goods and services. As a result, they produce fewer goods and services than we do in our society and those that they produce are for personal use rather than for capital goods.

13. Scarcity
What is the basic economic problem? The basic economic problem exists due to limited resources for satisfying unlimited needs and wants.
What is scarcity?
Scarcity is not having enough resources to satisfy the unlimited needs and wants. The scarcity of resources for satisfying needs and wants influences choices.
What is surplus?
Scarcity is having more than enough to satisfy demand .
The basic economic problem exists due to limited resources for satisfying unlimited needs and wants.
Scarcity is not having enough resources to satisfy the unlimited needs and wants.
The scarcity of resources for satisfying needs and wants influences choices.

14. Scarcity Requires Economic Choices
Allocating resources
Resources must be directed to their best use
Economizing
The process of deciding which goods and services to purchase or provide so that the most satisfaction can be obtain is known as economizing
Discuss the fact that scarcity requires economic choices.
Involves allocating resources: Resources must be directed to their best use.
Involves economizing: The process of deciding which goods and services to purchase or provide so that the most satisfaction can be obtained is known as economizing.

15. Scarcity Requires Economic Choices (cont)
Opportunity costs
When we economize, we decide how scarce resources will be used. When people, governments, and businesses make decisions about allocating their resources, they feel that they will gain more satisfaction from one choice rather than from another. When a choice is made about the best use of resources, the next-best alternative that is given up is called the opportunity cost of that choice. This is the benefit that is lost from making one choice vs. another.
Involves opportunity costs: When we economize, we decide how scarce resources will be used. When people, governments, and businesses make decisions about allocating their resources, they feel that they will gain more satisfaction from one choice rather than from another. When a choice is made about the best use of resources, the next-best alternative that is given up is called the opportunity cost of that choice. This is the benefit that is lost from making one choice vs. another.
Involves tradeoffs: This means that individuals, businesses, and governments must be willing to give up all or a part of one thing to get something else. The trade-offs that everyone is willing to accept should be based on the opportunity costs involved.

16. Scarcity Requires Economic Choices (cont)
Tradeoffs
What you give up to get your choice
This means that individuals, businesses, and governments must be willing to give up all or a part of one thing to get something else. The trade-offs that everyone is willing to accept should be based on the opportunity costs involved.

17. Three Economic Questions
What to produce?
And how much?
They must determine what and how many goods and services to produce. They must decide how to allocate their limited resources between the production of capital goods and consumer goods.
What to produce? They must determine what and how many goods and services to produce. They must decide how to allocate their limited resources between the production of capital goods and consumer goods.
How will products be produced? Most goods and services can be produced in a variety of ways. Societies must decide the best, most efficient ways to use their limited resources to produce products.

18. Three Economic Questions
2. How will products be produced?
Best most efficient way
Most goods and services can be produced in a variety of ways. Societies must decide the best, most efficient ways to use their limited resources to produce products

19. Three Economic Questions
3. How to allocate products?
Who gets to have it?
How to allocate products? Societies must determine how the goods and services will be divided among people. They need to decide how individuals, businesses, and governments will share products.

20. Economic Decision Making
The heart of economics is decision-making—choosing among alternatives.
The objective of studying economics is to prepare for effective decision-making and responsible citizenship in society.
Explain the relationship between economics and decision making.
The heart of economics is decision-making—choosing among alternatives. The objective of studying economics is to prepare for effective decision-making and responsible citizenship in society.

21. Major Economic Activities
Today people rely on others to provide them with at lease some of the goods and services they desire. As a result, goods, services and resources must move, or flow from one person to another. The following four economic activities make that movement possible:
Consumption
Production
Exchange Resource Owners
Distribution
Describe major economic activities.
Today, people rely on others to provide them with at least some of the goods and services they desire. As a result, goods, services and resources must move, or flow, from one person to another. The following four economic activities make that movement possible.
Consumption This is the ultimate goal of all economic activity. It is the process or activity of using goods and services. Anyone who used goods and services is a consumer. People consume goods and services to satisfy their wants and desires.
Production For consumption to occur, goods and services must be produced. Individuals who make or provide goods and services are called producers. They transform natural, human, and capital resources into more valuable goods and services for consumers. Examples of producers: hairstylists, clothing manufacturers, farmers
Exchange Resource owners—people and organizations who provide human resources, natural resources, or capital goods for use in production—require some form of payment for the use of their resources. Usually, this payment is in the form of money—wages, salaries, profits for human resources; interest or rent for capital goods; etc. After acquiring enough resources from resource owners, producers are able to produce goods and services. Consumers make money payments to the producers for the goods and services. This money payment is the price of the good or service.
Distribution This is the process or activity by which income is divided among resource owners and producers. Money received by resource owners and producers is known as income. Resource owners use their money to buy more goods and services. Producers use their income to buy more resources. Those receiving larger incomes are able to buy more goods, services, and resources than those with lower incomes.
Resource owners must feel that their incomes are large enough so that they will continue to supply resources. If they decided that their incomes weren’t sufficient, they may choose not to share their resources with producers. This would cause production to cease. Likewise, producers must receive enough income to continue making or providing goods and services. If they decided their incomes weren’t sufficient, they might choose not to make goods and services. In that case, consumption would cease. This results in a tug of war between resource owners and producers over how to divide the income they receive from consumers. The manner in which resource owners and producers divide their income depends on the type of economic system that exists.

22. Major Economic Activities
Consumption
This is the ultimate goal of all economic activity. It is the process or activity of using goods and services. Anyone who used goods and services is a consumer. People consume goods and services to satisfy their wants and desires.

23. Major Economic Activities (cont
Production For consumption to occur, goods and services must be produced. Individuals who make or provide goods and services are called producers. They transform natural, human, and capital resources into more valuable goods and services for consumers. Examples of producers: hairstylists, clothing manufacturers, farmers

24. Major Economic Activities (cont
Exchange Resource owners—people and organizations who provide human resources, natural resources, or capital goods for use in production—require some form of payment for the use of their resources. Usually, this payment is in the form of money—wages, salaries, profits for human resources; interest or rent for capital goods; etc. After acquiring enough resources from resource owners, producers are able to produce goods and services. Consumers make money payments to the producers for the goods and services. This money payment is the price of the good or service.

25. Major Economic Activities (cont
Distribution This is the process or activity by which income is divided among resource owners and producers. Money received by resource owners and producers is known as income. Resource owners use their money to buy more goods and services. Producers use their income to buy more resources. Those receiving larger incomes are able to buy more goods, services, and resources than those with lower incomes.

26. Major Economic Activities (cont
Resource owners must feel that their incomes are large enough so that they will continue to supply resources. If they decided that their incomes weren’t sufficient, they may choose not to share their resources with producers. This would cause production to cease. Likewise, producers must receive enough income to continue making or providing goods and services. If they decided their incomes weren’t sufficient, they might choose not to make goods and services. In that case, consumption would cease. This results in a tug of war between resource owners and producers over how to divide the income they receive from consumers. The manner in which resource owners and producers divide their income depends on the type of economic system that exists.

27. The Three Economic Questions
Objective 5.01
The Three Economic Questions

28. The Three Economic Questions
What do we produce?
And how much?
How do we produce it?
For whom do we produce it?

29. What do we produce? What –goods & services should be produced?
This is an allocation question.
All economic systems must determine how to allocate productive resources
land (natural resources/raw materials)
labor (work for which we earn pay) and
capital (human - education & job training) (physical – buildings, equipment & tools).
What –goods & services should be produced?
“What to produce?” is an allocation question. All economic systems must determine how to allocate productive resources in the form of land (natural resources/raw materials), labor (work for which we earn pay) and capital (human - education & job training) (physical – buildings, equipment & tools).

30. How do we produce it? How – should goods & services be produced?
This is an efficiency (the ability to do something or produce something without wasting materials, time, or energy ) question.
All economic systems must determine how goods and services will be produced.
How – should goods & services be produced?
“How to produce?” is an efficiency (the ability to do something or produce something without wasting materials, time, or energy ) question. All economic systems must determine how goods and services will be produced.

31. For whom do we produce it?
Who – consumes the goods & services produced in society?
This is a public choice question.
All economic systems must determine which goods and services will be available for public use and which for private use.
Who – consumes the goods & services produced in society?
“For whom?” is a public choice question. All economic systems must determine which goods and services will be available for public use and which for private use.

32. Economic System
The institutional framework of formal and informal rules that a society uses to determine what to produce, how to produce and how to distribute goods and services.
The more popular term is Economy.
The structural framework in which a nation undertakes the production and consumption decisions that allocate limited resources to satisfy unlimited wants and needs.
How do different economic systems respond to the 3 Key Economic questions? First of all, we need to define exactly what an “Economic System” is:
The institutional framework of formal and informal rules that a society uses to determine
what to produce, how to produce and how to distribute goods and services.
Another, more popular term for economic system is economy. An economy, or economic system, is the structural framework in which households, businesses, and governments undertake the production and consumption decisions that allocate limited resources to satisfy unlimited wants and needs.

33. Categorizing Economies
Market Economy
Command Economy
Mixed Economy

34. Market Economy
An economy that relies on a system of interdependent market prices to allocate goods, services, and productive resources and to coordinate the diverse plans of consumers and producers, all of them pursuing their own self-interest.
In a market economy, most of the decisions in the economy about what to produce, how to produce it and who receives it are made by individuals and firms.
Market Economy
An economy that relies on a system of interdependent market prices to allocate goods, services, and productive resources and to coordinate the diverse plans of consumers and producers, all of them pursuing their own self-interest.

35. Command Economy
An economy in which most economic issues of production and distribution are resolved through central planning and control.
In a command economy, government officials make most of the decisions in the economy about what to produce, how to produce it and who receives it.
What are other names for a command economy?
Command Economy
An economy in which most economic issues of production and distribution are resolved through central planning and control.
Another name for a command economy is communism. Another name for a command economy is ism.

36. Mixed Economy
A Mixed System incorporates elements of both command and market systems in determining answers to the three questions.
Mixed economies with strong market components also include a public goods and services sector, just as command economies like Cuba include a private goods and services sector.

37. The World Today
Most economic systems also contain elements of tradition or repeating decisions in ways made at an earlier time or by an earlier generation.
Nearly all economies are actually mixed, in that some economic decisions are made by individuals and private firms, but some are also made by government officials, either through rules and regulations or through government-owned firms.

38. An Economic Spectrum
The U.S. economy leans toward the market-oriented side of the spectrum.
An economy like Cuba or North Korea is near the command economy side of the spectrum.
But the dividing line between market and command economies in most nations is blurry rather than bright.

39. Market Economies - Capitalism
Capitalism is undoubtedly at the top of any list of economic systems operating in the modern world. It is based on:
private property--private ownership of resources and the means of production
individual liberty--relative freedom on the part of the resource owners to use their resources as they see fit
competitive markets--a system of relatively competitive markets.
Market Economies (“Capitalism”)
Capitalism is undoubtedly at the top of any list of economic systems operating in the modern world. This system is based on: (1) private property--private ownership of resources and the means of production, (2) individual liberty--relative freedom on the part of the resource owners to use their resources as they see fit, and (3) competitive markets--a system of relatively competitive markets.

40. Capitalism (cont.)
Governments establish the basic rules of the game and are responsible for the production of public goods
The vast majority of resource allocation decisions are undertaken by individuals, as either consumers or producers.
The United States is one of the more noted examples of capitalism. However, most modern industrialized economies of Europe, Asia, North America, and South America operate under capitalism.
Under capitalism, governments establish the basic rules of the game and are responsible for the production of public goods, but the vast majority of resource allocation decisions are undertaken by individuals, as either consumers or producers. The United States is one of the more noted examples of capitalism. However, most modern industrialized economies of Europe, Asia, North America, and South America operate under capitalism.

41. Command Economies - Socialism
Theoretically, socialism is the transition between capitalism and communism and is based on:
government ownership of resources and the means of production,
worker control of government
income distributed according to needs.
Command Economies (“Socialism”)
In theory, socialism is the transition between capitalism and communism and is based on: (1) government ownership of resources and the means of production, (2) worker control of government, and (3) income distributed according to needs.

42. Socialism (cont.)
As practiced, socialism is an economic system based on:
nationalized industries--government ownership and control of key industries
central planning--relatively detailed, but not comprehensive, resource allocation decision making by the central government.
As practiced in the real world, socialism is an economic system based on (1) nationalized industries--government ownership and control of key industries and (2) central planning--relatively detailed, but not comprehensive, resource allocation decision making by the central government.

43. Socialism (cont.)
governments exert extensive control over resource allocation decisions, primarily involving key industries such as transportation, energy production, communication, and health care.
While Sweden exemplifies modern socialism, several European nations have practiced varying forms of socialism over the decades.
Under real world socialism, governments exert extensive control over resource allocation decisions, primarily involving key industries such as transportation, energy production, communication, and health care. While Sweden exemplifies modern socialism, several European nations have practiced varying forms of socialism over the decades.

44. Command Economies - Communism
In theory, communism is an economic system based on:
a classless society
common ownership of resources
no government
income distributed according to needs.
Command Economies (“Communism”)
In theory, communism is an economic system based on: (1) a classless society, (2) common ownership of resources, (3) no government, and (4) income distributed according to needs.

45. Communism (cont.)
As practiced in the real world, communism is an economic system based on:
government ownership--government ownership and control of most resources and the means of production
central planning--excruciatingly detailed and comprehensive resource allocation decision making by the central government.
As practiced in the real world, communism is an economic system based on (1) government ownership--government ownership and control of most resources and the means of production and (2) central planning--excruciatingly detailed and comprehensive resource allocation decision making by the central government.
Under real world communism, governments undertake the vast majority of the resource allocation decisions, with few decisions undertaken by individuals. The former Soviet Union was the primary example of real world communism before if disbanded in the late 1980s. China, Cuba, and a scattering of African nations continue to operate under various forms of communism.

46. Communism (cont.)
Under real world communism, governments undertake the vast majority of the resource allocation decisions, with few decisions undertaken by individuals.
The former Soviet Union was the primary example of real world communism before if disbanded in the late 1980s.
China, Cuba, and a scattering of African nations continue to operate under various forms of communism.
Under real world communism, governments undertake the vast majority of the resource allocation decisions, with few decisions undertaken by individuals. The former Soviet Union was the primary example of real world communism before if disbanded in the late 1980s. China, Cuba, and a scattering of African nations continue to operate under various forms of communism.

47. Objective 5.01
Economic Utilities

48. What is utility? Useful products make our lives better.
They have utility—usefulness.
Utility is about satisfying wants and needs.
If customers are satisfied with what a product offers because it fulfills a desire, the product has utility.
If not, the product lacks utility.
Self-interest of businesses and customers fuels the idea of utility.
Consumers buy products to benefit utility to consumers.
The first products consumers buy are those that benefit them the most—the products with the most utility.
Useful products make our lives better. They provide us with something worthwhile. They have utility—usefulness.
Utility is about satisfying wants and needs. If customers are satisfied with what a product offers because it fulfills a desire, the product has utility. If not, the product lacks utility.
Self-interest of businesses and customers fuels the idea of utility. Consumers buy products to benefit utility to consumers. The first products consumers buy are those that benefit them the most—the products with the most utility.

49. Utility (cont.)
To stay in business, businesses offer products that provide significant utility.
To determine that, businesses measure consumer satisfaction in terms of low or high utility.
The higher the utility, the more satisfying the product is for a particular consumer.
Knowing what products most satisfy consumers’ needs helps marketers determine what products to offer.
This benefits consumers by letting them get the products they want.
When businesses know what products to offer, they attempt to increase the likelihood that the consumers will make future purchases and the level of customer satisfaction.
To stay in business, businesses offer products that provide significant. To determine that, businesses measure consumer satisfaction in terms of low or high utility. The higher the utility, the more satisfying the product is for a particular consumer.
Knowing what products most satisfy consumers’ needs helps marketers determine what products to offer. This benefits consumers by letting them get the products they want. When businesses know what products to offer, they attempt to increase the likelihood that the consumers will make future purchases and the level of customer satisfaction.
To do this, marketers make changes:
They improve existing products.
They develop better products.
They might change the hours they’re open.
They might make their products available on the Internet.
Making changes is called creating utility. Businesses usually adjust one of four types of utility.

50. Increasing Customer Satisfaction
Marketers make changes:
They improve existing products.
They develop better products.
They might change the hours they’re open.
They might make their products available on the Internet.
Making changes is called creating utility. Businesses usually adjust one of four types of utility.
To do this, marketers make changes:
They improve existing products.
They develop better products.
They might change the hours they’re open.
They might make their products available on the Internet.
Making changes is called creating utility. Businesses usually adjust one of four types of utility.

51. Types of Utility Form Utility and Task Utility Time Utility
Place Utility
Possession Utility

52. Form Utility and Task Utility
A product’s form is whatever is tangible—whatever can be touched or noticed by the senses.
Includes styles, scents, flavors, texture, sounds, and colors
All the “touchable” parts of a good
Marketers change “touchable” goods’ parts to create or increase utility.
Form utility is the usefulness created by altering or changing the form or shape of a good to make it more useful to consumers.
Form utility and task utility
A product’s form is whatever is tangible—whatever can be touched or noticed by the senses.
Includes styles, scents, flavors, texture, sounds, and colors
All the “touchable” parts of a good
Marketers change “touchable” goods’ parts to create or increase utility.
Form utility is the usefulness created by altering or changing the form or shape of a good to make it more useful to consumers.

53. Form Utility and Task Utility (cont.)
Task utility is the usefulness created by altering or changing the characteristics of a service to make it more useful to consumers.
Marketers change what they are doing to be helpful or useful.
Task utility is the usefulness created by altering or changing the characteristics of a service to make it more useful to consumers.
Marketers change what they are doing to be helpful or useful.

54. Time Utility
Involves getting the timing right to make products available to consumers
Accomplished by: looking ahead to determine the timelines needed by the businesses that process a product on its way to consumers
Marketers have to make changes when to avoid or to correct problem timing.
Time utility is the usefulness created when products are made available at the time they are needed or wanted by consumers.
Time utility
Involves getting the timing right to make products available to consumers
Accomplished by: looking ahead to determine the timelines needed by the businesses that process a product on its way to consumers
Marketers have to make changes when to avoid or to correct problem timing.
Time utility is the usefulness created when products are made available at the time they are needed or wanted by consumers.

55. Place Utility
Place is the right location for products—on the shelf, in the showroom, at the warehouse, etc.
Making changes to a product’s location can create place utility: the usefulness created by making sure that goods or services are available at the place where they are needed or wanted by consumers.
Place utility
Place is the right location for products—on the shelf, in the showroom, at the warehouse, etc.
Making changes to a product’s location can create place utility: the usefulness created by making sure that goods or services are available at the place where they are needed or wanted by consumers.

56. Possession Utility
Possession involves selling the product or transferring the product’s ownership.
The exchange of currency for the product shifts possession of the product to consumers so that the consumers own the product completely. In other words, you could do whatever you wanted to do with the product.
Possession utility
Possession involves selling the product or transferring the product’s ownership.
The exchange of currency for the product shifts possession of the product to consumers so that the consumers own the product completely. In other words, you could do whatever you wanted to do with the product.

57. Possession Utility (cont.)
Possession utility is the usefulness created when ownership of a product is transferred from the seller to the consumer and occurs after the product has been purchased and in the consumer’s control.
Marketers make changes that affect the purchasing process or its likelihood—making it easy to buy the product.
Possession utility is the usefulness created when ownership of a product is transferred from the seller to the consumer and occurs after the product has been purchased and in the consumer’s control.
Marketers make changes that affect the purchasing process or its likelihood—making it easy to buy the product.

58. Utility Varies
Different consumers and businesses can view the same product’s utility differently.
With utility, a consumer’s or a business’s level of satisfaction is measured at a specific point in time because a level of satisfaction changes over time.
Different consumers and businesses can view the same product’s utility differently.
Utility varies. With utility, a consumer’s or a business’s level of satisfaction is measured at a specific point in time because a level of satisfaction changes over time.

59. Utility Varies (cont.) Variety of factors affects utility.
The amount of satisfaction consumers and businesses receive from a product is affected by such factors as age, gender, income, educational level, interests, and preferences.
Marketers do not create utility by themselves.
Producers play an important role, too. With form utility, producers are the ones who change the physical form of a good—not marketers. Both marketers and producers are needed to create utility.

60. Customer Satisfaction
All four types of utility must be present for consumers to be satisfied; none of them can be overlooked.
From utility, marketers learn what consumers want—and how to bring it about.
All four types of utility must be present for consumers to be satisfied; none of them can be overlooked.
From utility, marketers learn what consumers want—and how to bring it about.

61. How does marketing influence utility?
By providing information
By being involved in specific types of utility

62. By providing information
Marketing is about making connection between products and its users.
Marketers communicate product information to make consumers and businesses aware of the product’s benefits and encourage them to buy.
When consumers and businesses purchase a product, they “connect” with it and can benefit from its utility.
Marketers provide information that influences utility.
Marketers use a variety of tools to communicate with and educate consumers and businesses: displays, advertising, mailings, personal selling—whatever tools they feel are best at connecting with their product users who would get the most utility from their products.
By providing information
Marketing is about making connection between products and its users.
To do this, marketers communicate product information to make consumers and businesses aware of the product’s benefits and encourage them to buy.
When consumers and businesses purchase a product, they “connect” with it and can benefit from its utility.
By providing information, marketers provide information that influences utility.
Marketers use a variety of tools to communicate with and educate consumers and businesses: displays, advertising, mailings, personal selling—whatever tools they feel are best at connecting with their product users who would get the most utility from their products.

63. By being involved in specific types of utility
Form:
Product changes are made in production—not in marketing.
Marketing affects form utility indirectly by recommending changes to producers after studying and analyzing which product features bring the most satisfaction to product users.
Form:
Product changes are made in production—not in marketing.
Marketing affects form utility indirectly by recommending changes to producers after studying and analyzing which product features bring the most satisfaction to product users.

64. By being involved (cont.)
Time:
Marketers must first find out when the product user (consumer or business) needs the product.
Then, they plan how to get the product through each phase of the process and into the product user’s hands—on time.
Finally, they make the adjustments needed to make the product-money exchange.
Time:
Marketers must first find out when the product user (consumer or business) needs the product.
Then, they plan how to get the product through each phase of the process and into the product user’s hands—on time.
Finally, they make the adjustments needed to make the product-money exchange.

65. By being involved (cont.)
Place:
Marketers aid in putting the product in the right place—the location where it will be bought. What they do:
Figure out where the right location is
Plan how to get the product there
Deliver the product to the right place.
Place: Marketers aid in putting the product in the right place—the location where it will be bought. What they do:
Figure out where the right location is
Plan how to get the product there
Deliver the product to the right place.

66. By being involved (cont.)
Possession:
Marketers pay attention to and address whatever is holding product users back from making a purchase, such as:
Product’s price: They justify its higher cost by explaining its benefits.
Unwillingness to buy right now: They answer questions and discuss the product’s immediate benefits.
Lack of money to buy: They arrange discount prices, payment plans, or layaway options.
Possession: Marketers pay attention to and address whatever is holding product users back from making a purchase, such as:
Product’s price: They justify its higher cost by explaining its benefits.
Unwillingness to buy right now: They answer questions and discuss the product’s immediate benefits.
Lack of money to buy: They arrange discount prices, payment plans, or layaway options.

67. Marketing Magic
Marketers can directly create time, place, and possession utility to make the purchase as easy as possible.

68. How does utility relate to the marketing concept?
Utility is about what the consumer thinks which is at the heart of the marketing concept—a philosophy that encourages marketers to look at things from the product user’s point of view.
When marketers use utility to discover how the product user sees a product, they can work to meet the product user’s needs. 
In this way, utility supports implementing the marketing concept.
It also plays a role in the implementation of the marketing concept when marketers use utility as a measurement tool to research what product users want.
How does utility relate to the marketing concept?
Utility is about what the consumer thinks which is at the heart of the marketing concept—a philosophy that encourages marketers to look at things from the product user’s point of view.
When marketers use utility to discover how the product user sees a product, they can work to meet the product user’s needs.
In this way, utility supports implementing the marketing concept.
It also plays a role in the implementation of the marketing concept when marketers use utility as a measurement tool to research what product users want.

69. Objective 5.01H
Pricing

70. Price
The amount of money that is paid for a good, service, or resource
In the U.S., it’s expressed in dollars and cents.
Indicates the value a customer places on a good, service, or resource
Describe the term price.
The amount of money that is paid for a good, service, or resource
In the U.S., it’s expressed in dollars and cents.
Indicates the value a customer places on a good, service, or resource

71. Price (cont.)
Customers generally willing to pay more for items they highly value.
Willingness to pay “the price” is based on:
Person’s available buying power
How much value the person places on the good, service or resource
Relative price of the good, service, or resource
Customers generally willing to pay more for items they highly value.
Willingness to pay “the price” is based on:
Person’s available buying power
How much value the person places on the good, service or resource
Relative price of the good, service, or resource

72. Relative Price
One price compared to another—the ratio between the two prices
Example: A cappuccino at a local donut shop is $2, while one at Starbucks is $4.
The relative price ratio is 1 to 2.
If the prices decreased to $1 and $2, the relative price ratio would remain unchanged—1 to 2.
Even if the cappuccino prices doubled to $4 and $8, the relative price would be the same—1 to 2.
Explain the concept of relative price.
One price compared to another—the ratio between the two prices
Example: A cappuccino at a local donut shop is $2, while one at Starbucks is $4. The relative price ratio is 1 to 2. If the prices decreased to $1 and $2, the relative price ratio would remain unchanged—1 to 2. Even if the cappuccino prices doubled to $4 and $8, the relative price would be the same—1 to 2.

73. Relative Price (example)
Plan
Pizzas ($12 each)
Movies ($6 each) A 10 B 1 8 C 2 6 D 3 4 E F 5
You have $60 to spend on pizzas and movies for your friends.
Pizzas are $12 each, and movies are $6 each.
You could choose any combination shown in the chart.
Every time you add one pizza, you have to give up two movies.
The choices you make depend on the value of the items to you.
Whether prices go up or down, relative prices do not change as long as the ratio remains the same.

74. Change in Relative Price
If the price of pizzas went up to $18, while movies remained at $6, their relative price ratio would have changed. Now, you’d have to give up 3 movies for every pizza.
The change in relative prices might cause people to buy more movies and fewer pizzas.
By comparing relative prices, customers choose the combinations of pizzas and movies that are most satisfactory to them.
Businesses compare relative prices to determine which combination of resources to use to produce their goods or services.
Owners of resources compare relative prices to determine where they can most advantageously sell their resources or the services their resources can supply.
Changes in relative price.
If the price of pizzas went up to $18, while movies remained at $6, their relative price ratio would have changed. Now, you’d have to give up 3 movies for every pizza.
The change in relative prices might cause people to buy more movies and fewer pizzas.
By comparing relative prices, customers choose the combinations of pizzas and movies that are most satisfactory to them.
Businesses compare relative prices to determine which combination of resources to use to produce their goods or services.
Owners of resources compare relative prices to determine where they can most advantageously sell their resources or the services their resources can supply.

75. Relative Price and the 3 Economic Questions
Relative prices and their effect on people’s decisions answer the three economic questions.
What to produce? Producers provide what are the most profitable, selling products at the highest prices the market will bear.
How to produce? Producers produce products at the lowest cost possible.
How will products be allocated? Whoever is willing and able to pay the price gets the products.
Explain the relationship of relative prices to the three economic questions in a market economy.
Relative prices and their effect on people’s decisions answer the three economic questions.
What to produce? Producers provide what are the most profitable, selling products at the highest prices the market will bear.
How to produce? Producers produce products at the lowest cost possible.
How will products be allocated? Whoever is willing and able to pay the price gets the products.

76. Functions of Relative Prices
Information
Incentives
Rationing

77. Information
Relative prices provide information needed to make economic decisions.
Used to decide whether to buy, what to buy, and how much to buy.
Discuss the functions of relative prices.
Information: Relative prices provide information needed to make economic decisions. Used to decide whether to buy, what to buy, and how much to buy.
Incentives: Profits encourage producers to change and reallocate their resources. They use relative prices to determine what to produce.
Rationing: Prices ration limited resources, goods, and services to those most willing and able to pay for them. Generally, the higher an item’s price, the less of it someone is willing to buy. Example: If 20,000 people want to see a soccer match, but the stadium can seat only 5,000 people, the price of admission could be raised to ration out the 15,000 who could not afford the ticket price. On the other hand, if there were 5,000 people and 20,000 seats, the price might be lowered to encourage more people to attend.

78. Incentives
Profits encourage producers to change and reallocate their resources.
They use relative prices to determine what to produce.
Incentives: Profits encourage producers to change and reallocate their resources. They use relative prices to determine what to produce.

79. Rationing
Prices ration limited resources, goods, and services to those most willing and able to pay for them.
Generally, the higher an item’s price, the less of it someone is willing to buy.
If 20,000 people want to see a soccer match, but the stadium can seat only 5,000 people, the price of admission could be raised to ration out the 15,000 who could not afford the ticket price.
On the other hand, if there were 5,000 people and 20,000 seats, the price might be lowered to encourage more people to attend.
Rationing: Prices ration limited resources, goods, and services to those most willing and able to pay for them. Generally, the higher an item’s price, the less of it someone is willing to buy. Example: If 20,000 people want to see a soccer match, but the stadium can seat only 5,000 people, the price of admission could be raised to ration out the 15,000 who could not afford the ticket price. On the other hand, if there were 5,000 people and 20,000 seats, the price might be lowered to encourage more people to attend.

80. How are Prices Determined?
The interaction of supply and demand largely determines the type and quantity of goods, services, and resources provided and the prices paid for them.
Supply indicates the quantities of an item that are offered for sale at various possible prices during a specific period of time.
Demand reflects the quantities that customers are willing and able to buy at various possible prices during the same time period.
Demand interacts with supply to determine prices. When the price of an item decreases, its demand increases. As the price increases, producers are willing to supply more of the item.
The interaction of supply and demand largely determines the type and quantity of goods, services, and resources provided and the prices paid for them.
Supply indicates the quantities of an item that are offered for sale at various possible prices during a specific period of time.
Demand reflects the quantities that customers are willing and able to buy at various possible prices during the same time period.
Demand interacts with supply to determine prices. When the price of an item decreases, its demand increases. As the price increases, producers are willing to supply more of the item.

81. Equilibrium Price
Occurs when the quantity of a good that buyers want to buy is equal to the quantity that sellers are willing to sell at a certain price
A state of balance or equality between opposing forces.
Also referred to as the market-clearing price
Determined by a trial-and-error process
Seldom, if ever, actually exists in the marketplace
The forces that determine it are always changing, thereby causing the equilibrium price to change.
Explain equilibrium price.
Occurs when the quantity of a good that buyers want to buy is equal to the quantity that sellers are willing to sell at a certain price
A state of balance or equality between opposing forces.
Also referred to as the market-clearing price
Determined by a trial-and-error process
Seldom, if ever, actually exists in the marketplace
The forces that determine it are always changing, thereby causing the equilibrium price to change.

82. Excess Supply
Occurs when the quantity demanded is less than the quantity supplied
Results in producers lowering their prices, consumers buying more at the lowered price, and producers producing less
These actions help to eliminate excess supply.
Discuss excess supply.
Occurs when the quantity demanded is less than the quantity supplied
Results in producers lowering their prices, consumers buying more at the lowered price, and producers producing less
These actions help to eliminate excess supply.

83. Excess Demand
Occurs when the quantity demanded is greater than the supply
Often results in increasing prices since some customers are willing to pay high prices to get what they want; others buy different products.
Producers respond by increasing the supply.
Excess demand is eliminated when the price reaches the point at which customers will buy the same quantities that producers have available to sell.
Prices set higher than the equilibrium price result in excess supply; those set lower than the equilibrium price result in excess demand.
Explain excess demand.
Occurs when the quantity demanded is greater than the supply
Often results in increasing prices since some customers are willing to pay high prices to get what they want; others buy different products.
Producers respond by increasing the supply.
Excess demand is eliminated when the price reaches the point at which customers will buy the same quantities that producers have available to sell.
Prices set higher than the equilibrium price result in excess supply; those set lower than the equilibrium price result in excess demand.

84. Market Price
This is the actual price that prevails in a market at any particular moment; it’s the price you pay for a good or service.
This price is also affected by supply and demand, causing the price you pay to fluctuate.
Any factor that causes changes in supply and demand will cause changes in prices.
Discuss market price.
This is the actual price that prevails in a market at any particular moment; it’s the price you pay for a good or service.
This price is also affected by supply and demand, causing the price you pay to fluctuate.
Any factor that causes changes in supply and demand will cause changes in prices.