Marketing Begins With Economics Chapter 3 The Marketing
Department Harrison High School
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The Importance of Economic Understanding Effective marketing is
more than just being creative in advertising. Marketing is more
scientific than creative. Marketing relies on an understanding of
basic economic principles and concepts. Effective marketing
requires an understanding of competition.
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A study of economics begins with the basic economic problem of
scarcity. People have unlimited wants and needs, but economic
resources are limited. Scarcity is the combination of unlimited
needs and wants with limited resources. Scarcity forces people and
businesses to make economic choices. The Basic Economic Problem
Frameworks 4.4
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Three Basic Economic Questions All economies must answer the 3
basic economic questions of What goods and services will be
produced? How will they produced? For whom will they be produced? A
countrys economic system is classified based on how the country
satisfies needs and how resources are distributed.
Controlled/Command Economy the government answers the questions.
Free/Market Economy the individuals interact in the marketplace to
answer the questions. Mixed Economy all economies are mixed.
Frameworks 4.1
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Americas Private/Free Enterprise Economy Private/Free
Enterprise is based on independent decisions by businesses and
consumers with limited government regulation. Characteristics of
Private Enterprise The market answers the three economic questions.
Resources are owned by individual producers. Competition (a rivalry
between 2 or more businesses) exists in the marketplace. The profit
motive encourages businesses to efficiently provide products, at a
profit, that consumers need & want. Consumers cast their
economic vote when they decide what to purchase. Consumers place
their individual value, or view on the worth, of a product or
service. Government stays out of the exchange unless individuals or
society will be harmed. The democratic form of government is most
closely associated with this type of economy. Frameworks 4.1
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Role of the Government in Our Private/Free Enterprise Economy
To provide services to its citizens. To support businesses and the
growth of business. To regulate trade to protect consumers and
workers. To promote competition in the marketplace.
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Private/Free Enterprise Private/Free Enterprise is also known
as Capitalism. Demand refers to the quantity of a product consumers
are willing and able to purchase at a given price. Supply refers to
the quantity of a product that producers are willing and able to
produce at a given price. Adam Smith wrote a book called The Wealth
of Nations in 1776 that advocated Capitalism. Frameworks 4.1
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Controlled/Command Economy The government answers the three
economic questions. Communism is the political system in which the
government owns and operates everything. This type of economy tends
to have very poor infrastructure refers to the condition of the
countrys roads, ports, sanitation facilities, and utilities. North
Korea is a good example of a controlled/command economy. Frameworks
4.5
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North Korea North Korea has the fifth-largest army in the
world. North Korea has the highest percentage of military personnel
per capita of any nation in the world. North Korea has a highly
centralized controlled/command economy. North Korea is one of only
two (along with Cuba) with an entirely government- planned,
state-owned economy. North Korean children are up to 5 inches
shorter and up to 14 pounds lighter than children who were brought
up in South Korea. Adult men are 4 inches shorter and women are 2.5
shorter. Malnutrition in North Korea is blamed for the height
difference. Watch video about North Korea hosted by Dan Rather of
60 Minutes. Frameworks 4.5
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The United States government is involved in the economy through
laws and regulations governing businesses, and provides socialistic
programs such as Medicaid for the economically disadvantaged and
Medicare for the elderly. Mixed Economies ARKids First health
insurance provides two coverage options for more than 70,000
Arkansas children who otherwise might have gone without. ARKids A
offers low- income families a comprehensive package of benefits.
ARKids B provides coverage for families with higher incomes. We
have streamlined the application process for both packages,
allowing you to apply for either package on the same form. Governor
Mike Huckabee signs ARKids legislation. Frameworks 4.5
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Mixed Economies All economies in the world today are mixed.
There is some government involvement in all economies. The
government is the largest consumer of goods and services in the
U.S. Frameworks 4.5
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Government Supports/Regulates Business in Our Private/Free
Enterprise System The Federal Emergency Management Agency (FEMA)
provides disaster assistance to help both businesses and homeowners
rebuild after disasters. The Small Business Administration (SBA)
provides counseling and educational materials to support
businesses. www.sba.gov The Securities and Exchange Commission
(SEC) regulates the sale of stocks and bonds. The Occupational
Safety and Health Administration (OSHA) regulates the workplace to
ensure safe working conditions. The Environmental Protection Agency
(EPA) regulates business practices to promote a cleaner
environment. Cars built after 1974 were required to use unleaded
gasoline only and reduced the level of lead in peoples blood. The
Equal Employment Opportunity Commission (EEOC) regulates businesses
to protect employees from discrimination.
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Government Involvement The American Recovery and Reinvestment
Act of 2009 is an economic stimulus package enacted by Congress and
signed into law by President Barack Obama on February 17, 2009. The
Act was intended to provide a stimulus to the U.S. economy in the
wake of the economic downturn. The Act was worth as much as $787
billion. President Obama signs into the law the American Recovery
and Reinvestment Act, commonly known as The Stimulus.
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Government Involvement The Troubled Asset Relief Program (TARP)
is a program of the United States government to purchase assets and
equity from financial institutions in order to strengthen the
financial sector. TARP allows the United States Department of the
Treasury to purchase or insure up to $700 billion of "troubled"
assets. It was the largest component of the government's measures
to address the subprime mortgage crisis. The cartoon above reflects
the view of many Americans concerning the TARP law, commonly called
The Bailout.
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Privatization Vs. Nationalization Privatization is the act of
the government selling or converting any of its businesses to be
run by private individuals. Nationalization is the act of taking an
industry, business, or other private assets into government
ownership.
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The Business Cycles Business cycles are constant changes and
ups and downs in economic growth. A government influences business
cycles through its policies and programs. When taxes are raised,
businesses and consumers have less money with which to fuel the
economy. The government may reduce interest rates, cut taxes, or
institute federally funded programs to spark a depressed economy.
Trough the low point of a recession just before recovery begins.
Peak the high point of an economic recovery. Frameworks 4.9
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The Phases of the Business Cycle Prosperity is a period of
economic growth and expansion. Nationwide there is low
unemployment, an increase in the output of goods and services, and
high consumer spending. Recession is a period of economic slowdown.
Unemployment begins to rise, fewer goods and services are produced,
and consumer spending decreases. Recessions usually last 6-8
months, cut can last for a long period of time. Depression is a
period of prolonged and deep recession. Consumer spending is very
low, unemployment is very high, and production of goods and
services is down significantly. Poverty results because many people
are out of work and cannot afford to buy food, clothing, or
shelter. The Great Depression of the early 1930s best illustrates a
depression. Recovery is a period of renewed economic growth
following a recession or depression. Recovery is characterized by
reduced unemployment, increased consumer spending, and moderate
expansion by businesses. Periods of recovery differ in length and
strength. Frameworks 4.9
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Depression A long and severe drop in the Gross Domestic
Product. The Great Depression that began in 1929 left many
Americans homeless and standing in line at soup kitchens.
Frameworks 4.9
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Economic Measurements Productivity is output per worker hour.
Gross domestic product is a measure of the goods and services
produced using labor and property located in a country. Inflation
refers to rising prices. A low inflation rate (1-5 percent) shows
that an economy is stable. The Consumer Price Index (CPI), also
called the cost-of-living index, measures the change in price of
some 400 retail goods and services used by the average urban
household. The Producer Price Index (PPI) measures wholesale price
levels in the economy. Increases often get passed along to the
consumer. The Consumer Confidence Index (CCI) measures consumer
confidence about personal finance, economic conditions, and buying
conditions. The higher the unemployment rate, the greater the
chances of an economic slowdown. The lower the unemployment rate,
the greater the chances of an economic expansion. Frameworks
4.8
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Observing The Laws Of Supply And Demand Economics operates on
two levels: Macroeconomics studies the economic behavior and
relationships of an entire society. Microeconomics examines
relationships between individual consumers and producers.
Microeconomics also studies how individuals make decisions about
what to produce and what to buy. Marketers are primarily concerned
about Microeconomics. Factors Affecting Demand How strong is the
need or want for that product? Is the supply of the product large
or small? What is the availability of alternative products that
will satisfy the need?
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Observing The Laws Of Supply And Demand Analyzing Demand Curves
A demand curve is often illustrated by a graph that illustrates the
relationship between price and the quantity demanded. Law of Demand
When the price of a product is increased, less will be demanded.
When the price is decreased, more will be demanded. Frameworks
4.6
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Demand Curve for Movies Price $10.50 9.00 7.50 6.00 4.50 3.00
1.50 1,000 Quantity 2,0003,0004,0005,0006,0007,000 Frameworks
4.6
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Supplying the Product Businesses operate to make a profit and
will prefer to supply more of those products that offer the
greatest profit potential. Frameworks 4.6
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Economic Resources Land/Natural Resources anything in its
natural state oil, natural gas, coal, trees. Capitol Resources
money, tools, and equipment needed for production of products or
services. Labor/Human Resources employees of the business.
Entrepreneurship the individual who takes the risk of owning and
operating the business. Frameworks 4.2
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Buying Economic Resources What country is the largest trading
partner for the United States? 1. Canada: $ 518.10 2. China: $
345.45 3. Mexico: $ 315.59 4. Japan: $176.30 5. Germany: $129.73 6.
United Kingdom: $ 97.22 7. South Korea: $ 71.70 8. France: $ 62.03
9. Saudi Arabia: $ 59.32 10. Brazil: $ 54.14
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The Oil Sands of Alberta Theres an oil boom going on right now.
Not in Saudi Arabia or Kuwait or any of those places, but 600 miles
north of Montana. In Alberta, Canada, in a town called Fort
McMurray where, in the dead of winter, the temperature sometimes
zooms up to zero. Where Black Gold And Riches Can Be Found In The
Sand Frameworks 4.2
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Supplying the Product A supply curve is illustrated by a graph
that illustrates the relationship between price and quantity
supplied. The Law of Supply When the price of a product is
increased, producers will prefer to produce more of that product.
When the price is decreased, less will be produced. Frameworks
4.6
Price $2,100 1,800 1,500 1,200 900 600 300 100 Quantity (in
000s) 200300400500600700800 Demand Supply Market Price Intersecting
Supply & Demand The Market Price is found when supply and
demand curves meet. AKA Equilibrium Point Supply and Demand Curves
for Laptop Computers Frameworks 4.6.2
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Surplus Vs. Shortage Surpluses of goods occur when supply
exceeds demand. When this happens, businesses respond by lowering
their prices in order to encourage people to buy more of the
product. AKA a buyers market. When demand exceeds supply, shortages
of products occur. When shortages occur, businesses can raise
prices and still sell their merchandise. AKA a sellers market.
Equilibrium exists when the amount of product supplied is equal to
the amount of product demanded. Jingle all the Way was released in
December, 1996. Frameworks 4.6.1
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Types Of Economic Competition In pure competition, many
suppliers will offer very similar products even the same products.
All cattle farmers are competitors with each other. But they rarely
view themselves that way. Why? Individually, they have virtually no
influence on the price they receive for their product pure
competition.
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Types Of Economic Competition A monopoly is a type of market in
which one supplier offers a unique product and has exclusive
control of the market. Some regulated monopolies are allowed to
exist because it would not make sense to have more than one
provider of that product or service. Frameworks 5.4.3
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Between Pure Competition & Monopoly In an oligopoly a few
businesses offer very similar products or services. The cost of
starting a new business in this situation is extremely high usually
there will be no new competitors. If these businesses work together
(collusion) they will have created an illegal monopoly. In an
oligopoly if one business increases or lowers price, the other
businesses will usually match the competitor's new price. If they
compete with each other based on price, prices will be lowered to a
point where the business may become unprofitable.
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In monopolistic competition, there are many firms competing
with products that are somewhat similar. This is the most common
type of competition facing businesses today. A business in this
situation will have little control in the marketplace, as they will
usually be forced to stay in line with their competitors. However,
the greater the differences among products and services, the more
control the business will have over its pricing strategy. Business
will strive to have products and services that are better than, and
different from, competitors. Between Pure Competition &
Monopoly
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Monopolistic Competition
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Avoiding Monopolistic Competition The term blue ocean refers to
all the industries not in existence todaythe unknown market space,
untainted by competition. In blue oceans, demand is created rather
than fought over. There is ample opportunity for growth that is
both profitable and rapid. In blue oceans, competition is
irrelevant because the rules of the game are waiting to be set. The
term blue ocean is an analogy to describe the wider, deeper
potential of market space that is not yet explored.
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How much would you pay to see a circus act like those found at
Ringling Brothers and Barnum and Bailey? A ticket can cost as
little as $12.
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How much would you pay to see a Cirque Du Soleil show? The
ticket price is $125 - $150 for a Cirque Du Soleil show in Las
Vegas. The traveling shows have prices ranging from a low of $69 to
a high of $250. http://www.cirquedusoleil.com/
en/shows/ka/tickets.aspx
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Why is Cirque Du Sloeil successful? Traditional circuses, that
feature animal acts and clowns, have been on the decline for many
years. Cirque Du Sloeil (headquartered in Montreal, Canada),
avoided monopolistic competition and created a Blue Ocean. Watch
video from 60 minutes program.
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Utility Means Satisfaction Economic utility is the amount of
satisfaction, or value, a consumer receives from the consumption of
a particular product or service. Businesses use economic utility to
increase the chances that consumers will buy their products or
services. The four types of utility: Form Utility, Time Utility,
Place Utility and Possession Utility. Frameworks 4.3
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Form Utility Type of utility created by changes in the form or
shape of a product to make it useful. Frameworks 4.3.1
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Place Utility Created by having a good or service at the
location where it is needed or wanted Frameworks 4.3.1
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Time Utility Created when a product or service is available
when it is needed or wanted by consumers Frameworks 4.3.1
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Possession Utility Created when ownership of a good or service
is transferred from one person to another, but it may also occur
through renting or borrowing. Finding ways to finance, rent, or
lease products has become an important business activity.
Frameworks 4.3.1