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MARKETING
1
Chapter 3
MARKETING BEGINS WITH ECONOMICS
3-1 Scarcity and Private Enterprise
3-2 Observing the Law of Supply and Demand
3-3 Types of Economic Competition
3-4 Enhancing Economic Utility
CHAPTER
3
MARKETINGChapter 3
3
SCARCITY AND PRIVATE ENTERPRISE
GOALSIdentify the basic economic problem.Describe how America’s private
enterprise economy works.
3-1
MARKETINGChapter 3
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The Importance of Economic Understanding
Effective marketing relies on the principles and concepts of economics
Knowledge of economics & decisions improve marketing decision making & results in increased customer satisfaction & higher profits for the company
MARKETINGChapter 3
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Basic Economic Problem
Wants and needs are unlimited – people seldom feel completely satisfied
Conversely resources are limited – never enough available to meet everyone’s needs and wants
EX- Producing a car Producing a car requires a variety of resources: glass, rubber, steel,
plastic Each of those resources is in limited supply They are also used to produce other items in addition to cars In turn, there might not be enough to make as many cars as people
want
MARKETINGChapter 3
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Basic Economic Problem
Scarcity – unlimited wants and needs, combined with limited resourcesCreates difficult problems for societyChoices must be madeWho makes the decision determines the
economic system a society has
MARKETINGChapter 3
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Who Makes the Decisions
An economy is designed to facilitate the use of limited resources to satisfy the individual and group needs of people in the economyAll economies must answer three questions
1. What goods and services will be produced
2. How will they be produced
3. For whom will they be produced
MARKETINGChapter 3
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Types of Economies
Controlled EconomyThe government answers all three
economic questionsIt attempts to own & control important
resources and make decision on what is produced and consumed
MARKETINGChapter 3
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Types of Economies
Free Economy (AKA Market Economy)Resources are owned by individuals rather
than the governmentThe market provides answers to the 3
questions above No Government involvement
MARKETINGChapter 3
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Types of Economies
Mixed EconomySome goods and services are provided by
the government and some by private enterprise
MARKETINGChapter 3
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Types of Economies
America’s Private Enterprise Economy (Capitalism)Private Enterprise is based on independent
decisions by businesses and consumers with only a limited government role regulating
Resources and production are owned by individualsProfit motive – obtain the greatest profitValue – individual view of the worth of a product or
service
MARKETINGChapter 3
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America’s PrivateEnterprise Economy
CharacteristicsProfit MotiveValueConsumersProducersGovernment
Economic forces
MARKETINGChapter 3
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America’s PrivateEnterprise Economy
Profit Motive – is the use of resources to obtain the greatest profit.
MARKETINGChapter 3
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America’s PrivateEnterprise Economy
Value – is an individual view of the worth of a product or service.Comparing the cost of something they are
considering purchasing to other available alternatives.
MARKETINGChapter 3
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America’s PrivateEnterprise Economy
Consumers – individuals who purchase products and services to satisfy needs.Demand – is a relationship between the
quantity of a product consumers are willing and able to purchase and the price.
MARKETINGChapter 3
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America’s PrivateEnterprise Economy
Producers – businesses that use their resources to develop products and services.Supply – is a relationship between the
quantity of a product that producers are willing and able to provide and the price.
MARKETINGChapter 3
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America’s PrivateEnterprise Economy
Government – gets engaged when consumers or producers are at a disadvantage and will not receive fair treatment, or society will be harmed.Enacts laws and regulations
MARKETINGChapter 3
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America’s PrivateEnterprise Economy
Economic forces
MARKETINGChapter 3
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OBSERVING THE LAW OF SUPPLY AND DEMAND
GOALSExplain microeconomics and the
concept of consumer demand.Identify factors that affect supply and its
relationship to demand.
3-2
MARKETINGChapter 3
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Economics
Economics attempts to understand and explain how consumers and producers make decisions concerning the allocations of their resources.
Divided into 2 main levelsMacroeconomicsMicroeconomics
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Macroeconomics
Macroeconomics studies the economic behavior and relationships of an entire society.Looks at the BIG pictureDetermines if society’s resources are being used
as effectively and efficiently as possibleStudies the decisions of all consumers and
producers and the effects on society
MARKETINGChapter 3
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Microeconomics
Microeconomics is the study of relationships between individual customers and producers.Looks at SMALL parts of the total economyStudies how individuals make decisions
about what to produce & consume
MARKETINGChapter 3
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Microeconomics andConsumer Demand
Factors affecting demandAnalyzing demand curves
Demand curveLaw of demandEconomic market
MARKETINGChapter 3
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Microeconomics andConsumer Demand
Factors affecting demandImportance or strength of your need or
want…ex. baseball gameAvailable supply of products and services
to satisfy your needs…ex. Farmers marketAvailability of alternative products that
consumers believe will satisfy their needs…ex. entertainment
MARKETINGChapter 3
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Microeconomics andConsumer Demand
Economist try to determine how much consumers are willing to pay for various quantities of products and services.
Analyzing demand curvesDemand curve Law of demandEconomic market
MARKETINGChapter 3
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Microeconomics andConsumer Demand
Analyzing demand curvesDemand curve – the relationship between
price and the quantity demandedLaw of demand – as prices increase
demand decrease, as prices decrease demand increases
Economic market – all consumers who will purchase a particular product or service
MARKETINGChapter 3
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Price$10.50
9.00
7.50
6.00
4.50
3.00
1.50
1,000Quantity
2,000 3,000 4,000 5,000 6,000 7,000
Demand Curve for Movies
MARKETINGChapter 3
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Supplying the Product
Handling the competitionAnalyzing supply curve
Supply curveLaw of supply
MARKETINGChapter 3
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Supplying the Product
Handling the competitionBusiness will try to offer products that can make
moneyCompetition is intense – fewer opportunities for
success Companies differentiate their product
Economic resources – classified as natural resources, capital, equipment, and labor
MARKETINGChapter 3
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Supplying the Product
Analyzing supply curveSupply curve – the relationship between
price and quantity suppliedLaw of supply – as prices increase supply
increase, as prices decrease supply decrease
MARKETINGChapter 3
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Price$105
90
75
60
45
30
15
10,000Quantity
20,000 30,000 40,000 50,000 60,000 70,000 80,000
Supply Curve for Cell Phones
MARKETINGChapter 3
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Intersecting Supply and Demand
Supply curveDemand curveMarket Price – the point where supply
and demand are equal
MARKETINGChapter 3
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Demand Curve for Notebook Computers
Price
$2,100
1,800
1,500
1,200
900
600
300
100Quantity (in 000s)
200 300 400 500 600 700 800
MARKETINGChapter 3
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Supply Curve for Notebook Computers
Price
$2,100
1,800
1,500
1,200
900
600
300
100Quantity (in 000s)
200 300 400 500 600 700 800
MARKETINGChapter 3
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Price
$2,100
1,800
1,500
1,200
900
600
300
100Quantity (in 000s)
200 300 400 500 600 700 800
Market Price for Notebook Computers
Demand Supply
Market Price
MARKETINGChapter 3
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TYPES OF ECONOMIC COMPETITION
GOALSDefine pure competition and monopoly.Explain the characteristics of
oligopolies and monopolistic competition.
3-3
MARKETING
Marketing Matters
With a partner complete marketing matters on page 72.
Chapter 3
37
MARKETING
Types of economic competition
Two characteristics are important to determine the type of economic competition in a specific market
The number of firms competing in the marketThe amount of similarity between the products of
competition business
MARKETING
Types of economic competition
There are four forms of economic competitionPure CompetitionMonopolyOligopolyMonopolistic Competition
MARKETING
Four Forms of economic competition
1. Pure competition- few markets with a large # of suppliers with similar productso Consumers have a great deal of control over choices and priceso Because businesses are unable to offer products that
consumers view as unique, they must accept the prices that
consumers are willing to pay, or the consumer will buy from
another business o Some examples include: agricultural products such as corn, rice, wheat,
and livestock
o Each producers products are just like every other producerso There are many producers so consumers will have no difficulty
finding a business that will sell the product
MARKETINGChapter 3
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Price
Quantity
Demand Curve for One Companyin Pure Competition
MARKETING
Four Forms of Economic Competition
2. Monopoly- a type of market in which one supplier offers a unique product o In this market, the supplier has almost total control, and the consumers
will have to accept the suppliers priceo This occurs because of lack of competitiono Governments attempt to control monopolieso Examples are: utility companies that supply electricity, gas or watero There is only 1 supplier of each product and it would be very inefficient
to have several companies extend gas & water lines to every homeo Once a home is supplied with utilities it would be easy for them to raise
the price, and the consumer would have to pay the higher price – so the
government agencies regulate the prices that can be charged
MARKETINGChapter 3
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Price
Quantity
Demand Curve for a Monopoly
MARKETING
Four Forms of Economic Competition
3. Oligopolies- few businesses offer very similar products and services
o Ex- The airline industry – there are only a few large airlines
competing for national travel in the USo One airline will not succeed in increasing prices aloneo If the airline industry wants higher prices, competing companies
need to cooperate in raising their prices as well o Depending on the industry the government may attempt to
regulate that type of activity, by making it illegal for businesses to
work together to control priceso Price fixing- is an agreement between business competitors to sell
the same product or service at the same price
MARKETINGChapter 3
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Demand Curve for the Industry in an Oligopoly
Price
Quantity
MARKETING
Four Forms of economic competition
4. Monopolistic Competition- many firms compete
with products that are somewhat differento With more competitors and only minor differences, businesses
will have very limited controlo When you have choices as a consumer, you usually select the
one providing the most satisfaction at the best value o Examples include: restaurants, movie theaters, shopping malls,
and athletic storeso If your products are similar with other businesses you have to
follow the status quo, but if your product is new and unique then
you have more freedom to do as you wish
MARKETINGChapter 3
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Demand Curve for Monopolistic Competition with Greater Product Differences
Price
Quantity
MARKETINGChapter 3
52
ENHANCINGECONOMIC UTILITY
GOALSDefine four types of economic utility.Explain how marketers use utility to
increase customer satisfaction.
3-4
MARKETINGChapter 3
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Utility Means Satisfaction
Economic utilityForm utilityTime utilityPlace utilityPossession utility