Chapter 3: Marketing Begins with Economics

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Company
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Chapter 3:
Marketing Begins with
Economics
Mrs. Piotrowski
Marketing
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SECTION 1:
SCARCITY & PRIVATE
ENTERPRISE
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Make a list of your last 5
purchases.
How did the availability of product
choices and amount of money
affect your purchasing decision?
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The Importance of Economic Understanding
Many people believe that effective marketing relies almost solely on creativity, but…
• The marketing process is scientific…
– It relies on the principles and concepts of
economics.
• Knowledge of economics and how economic
decisions are made improves marketing decision
making.
– An understanding of the types of competition
that businesses face also contributes to better
marketing decisions.
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The Basic Economic Problem
People’s wants and needs are unlimited.
Resources are limited.
• Unlimited wants and needs, combined with
limited resources, result in scarcity.
• Scarcity is the basic economic problem…
– Because of scarcity choices must be made
regarding how to best utilize resources.
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Who makes decisions?
An economy is designed to facilitate the use of limited resources to satisfy the
needs of people.
• All economies must answer 3 questions:
1. What goods and services will be produced?
2. How will they be produced?
3. For whom will they be produced?
• Economies are organized into different
economic systems based on how these 3
questions are answered.
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Types of Economic Systems
• Controlled Economy – The government
attempts to own and control important resources
and to make the decisions about what will be
produced and consumed.
• Free Economy (Market Economy) – Decisions
are made independently with no attempt at
government regulation or control.
• Regulated Economy – The resources and
decisions are shared between the government
and other groups or individuals.
Who answers the economic questions in each
of the above economic systems?
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America’s Private Enterprise Economy
• The U.S. has many of the characteristics
of a free economy.
– The U.S. economic system is often called a
private enterprise or free enterprise economy.
• Private enterprise is based on
independent decisions by businesses and
consumers, with a limited government
role.
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Characteristics of Private Enterprise
• Resources of production are owned and
controlled by individual producers.
• Producers use the profit motive to decide
what to produce.
– The profit motive is the use of resources to
obtain the greatest profit.
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Characteristics of Private Enterprise
• Individual consumers make decisions
about what will be purchased to satisfy
needs.
• Consumers use value in deciding what to
consume.
– Value is an individual view of the worth of a
product or service.
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Characteristics of Private Enterprise
• The government stays out of exchange
activities between producers and
consumers unless it is clear the individuals
or society are harmed by the decisions.
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Supply & Demand
• Consumers are individuals who purchase
products and services to satisfy needs.
– They create demand.
• Producers are businesses that use their
resources to develop products and
services.
– They create supply.
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SECTION 2:
OBSERVING THE LAW OF
SUPPLY & DEMAND
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Write down 2 things you have
purchased recently…1 need and 1
want…and how much they cost.
If each had cost 20% more,
50% more,
100% more,
Would you still have
purchased them?
What determines
the point at which
you decide not to
buy something?
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Macroeconomics vs. Microeconomics
• Macroeconomics studies the economic
behavior and relationships of an entire
society.
• Microeconomics examines relationships
between individual consumers and
producers.
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Law of Demand
• When the price of a product is increased,
less will be demanded.
• When the price is decreased, more will be
demanded.
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Supplying the Product
• There are several factors that influence
what and how many products a business
will produce:
1. Possibility of profit
2. Amount of competition
3. Capability of developing and marketing the
products or services
• The specific types of economic resources (natural
resources, capital, equipment, & labor) will
determine this capability.
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Law of Supply
• As the price increases, producers will
manufacture more of a product.
• As the price goes down, fewer will be
manufactured.
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Intersecting Supply & Demand
• To determine the amount of a product or service
that will actually be produced and sold, a
business needs to combine the supply and
demand curves.
• The point where supply and demand for a
product are equal is known as the market price.
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SECTION 3:
TYPES OF ECONOMIC
COMPETITION
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Make a list of 6 businesses, large
and small, that operate here in
Orchard Park.
Rate the businesses from
1 to 10 based on how
much market control you
think they have over the
prices they charge.
Why do you think
some businesses
have more control
over this than
others?
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Forms of Economic Competition
• Two characteristics are important to
determine the type of economic
competition:
1. The number of firms competing in the
market.
2. The amount of similarity between the
products of competing businesses.
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Forms of Economic Competition
• Pure Competition – Many suppliers offer
very similar products (agricultural).
• Oligopoly – A few businesses offer very
similar products or services (airlines).
• Monopolistic Competition – Many firms
compete with products that are somewhat
different (most retail businesses).
• Monopoly – One supplier offers a unique
product (utility companies).
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SECTION 4:
ENHANCING ECONOMIC
UTILITY
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Identify a product in our classroom.
How could the
product be
changed?
Why would you
make these
changes?
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Utility Means Satisfaction
• Economic utility is the amount of
satisfaction a consumer receives from the
consumption of a particular product.
– Products that provide great satisfaction have
higher economic utility.
– Products providing less satisfaction have a
lower utility.
• Businesses use economic utility to
increase the chances that consumers will
buy their products and services.
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Types of Utility
• Form utility results from changes in the
tangible parts of a product or service (one
bank provides a better interest rate than
another).
• Time utility results from making the
product or service available when the
consumer wants it (bank stays open late
on Fridays).
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Types of Utility
• Place utility is making the products or
services available where the consumer
wants them (a bank located in the grocery
store).
• Possession utility results from the
affordability of the product or service
(extending credit to customers to allow
them to make a purchase).
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