1. 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~

2. 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

3. 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?

4. 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

5. 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?

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

7. 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

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

9. 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 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)

10. 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 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

11. 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

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

13. 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)

14. 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

15. 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

16. 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

17. 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

18. 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

19. The Business Cycle

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