2Our Free Enterprise System Why do people want to immigrate to the United States, both legally and illegally?
3Unit 5 Vocabulary Business Cycle Business Risk Command Economy CompetitionConsumer Price Index (CPI)CopyrightDemandDepressionEconomyEntrepreneurshipExpansionFactors of ProductionFree Enterprise SystemGross Domestic Product (GDP)Gross National Product (GNP)InflationInfrastructureMarginal UtilityMarket EconomyMonopolyNon-price competitionPatentPrice CompetitionProducer Price Index (PPI)ProductivityProfitRecessionRecoveryResourcesScarcitySupplyTrademarkTraditional EconomyUtility
4Unit 5 Essential Question How do customer behaviors and the economic environment in which they function relate?
5Basic Economic Concepts Essential Question 1Basic Economic ConceptsWhat is the relationship between marketing and the economy?
6Marketing and the Economy Marketing plays an important role in the economy.Provides new and improved productsMarketing provides a means for competition to take place.This competition fosters new and improved products.This creates a larger variety of goods and services.
7Marketing and the Economy Marketing plays an important role in the economy.Lowers PricesMarketing activities increase demand.This will result in manufactures increasing production.This causes the fixed costs per unit to decrease which lowers prices.
8Basic Economic Concepts Essential Question 2Basic Economic ConceptsWhat are the differences between economic concepts and economic activities and economic goods and economic services?
10Concepts vs. Activities Some basic economic concepts include:Free enterpriseCompetitionTypes of competitionRiskProfitEconomic activities are those specific events that occur within the defined concept.
11Free Enterprise System People have the right to make economic choices.Can choose what products to buy.Can choose to own property.Can choose to start a business and compete with others.
12Competition The struggle between companies. Forces companies to become efficient.Keeps prices down and quality up.
13Types of CompetitionPrice Competition: Goes on the assumption, all things being equal, customers will buy the product that is lower in price.RebatesCouponsNon-price Competition:QualityServiceLocationReputation
14Risk & Profit Business Risk: Potential for loss or failure. As the potential for earning gets greater, so does the risk.Risk of failure serves as a positive function to encourage quality.Profit: Money left after all expenses.Main incentive of a free enterprise system.
15Basic Economic Concepts Essential Question 3Basic Economic ConceptsWhat are the major types of economic resources?
16What is an Economy?Economy: A system by which a nation decides how to use its resources to produce and distribute goods and services.Resources: All the things used in producing goods and services. Also known as factors of production.
17Factors of ProductionLand: Everything contained in the earth or found in the sea.
18Factors of ProductionLabor: Full and part-time workers, managers, public workers and professional people.
19Factors of ProductionCapital: Money as well as buildings, equipment and tools needed for the operation of a business.
20Factors of ProductionEntrepreneurship: Skills of the people who are willing to risk their time and money to run a business.
21Developmental Factors Factors that influence the level of economic development.Affect the efficiency and quality in which the factors of production are used.
22Developmental Factors Infrastructure: Roads, ports, sanitation facilities, and utilities.
23Developmental Factors Literacy Level: Better education results in more goods and services that are of higher quality.
24Developmental Factors Technology: Automated production, distribution, and communications systems allow companies to create and deliver goods, services, and ideas more quickly and more efficiently.
25Developmental Factors Agricultural Dependency: Agricultural based economies generally do not have the manufacturing base to provide high quality products.
26Essential Question 4 Basic Economic Concepts What are the types of economic utility created by business activities?
27Added ValueThe functions of marketing add value to a product. This added value is known as utility.Utility is the usefulness of a product.There are five types of economic utilities.
28Form UtilityMaking or producing things. Involves changing raw materials or putting parts together to make them more useful.
29Place UtilityThe product’s usefulness is increased because of its location.
30Time UtilityMaking a product available at the right time of year or a convenient time of day.
31Information UtilityUsefulness added to the product through communication.Packages, labels, advertisements, displays, signs . . .
32Possession UtilityThe ability to aid customers in owning goods.
33Marginal UtilityLaw of Diminishing Marginal Utility: Usefulness or utility of a product decreases as the number of units of the product obtained by the customer increases.
34Basic Economic Concepts Essential Question 5Basic Economic ConceptsWhat are the various economic systems and the effects on what, how, and for whom goods and services will be produced?
35How does an economy work? In deciding how to use their limited resources, nations, businesses, and people must answer three basic economic questions.
36How does an economy work? Basic Economic QuestionsWhat goods and services should be produced?How should the goods and services be produced?For whom should the goods and services be produced?
37How Does an Economy Work? Traditional Economy: Cultural or religious practices and ideals that have been passed down by generation make the economic decisions.Culture decides what should be produced.Generational practices decide how products will be produced.Tradition regulates for whom products should be produced.
38How Does an Economy Work? Market Economy: No government involvement in economic decisions.Consumers decide what should be produced with their purchases.Businesses decide how products will be produced.People with money decide for whom products should be produced.
39How Does an Economy Work? Command Economy: The government makes all economic decisions.The dictator or central committee decides what should be produced.The government decides how products will be produced because it runs all businesses.The government decides for whom products should be produced.
40How Does an Economy Work? Mixed Economy: No economy is 100% traditional, market or command. Every economy has influences from all three. The degree of influence tends to classify the economy.
41Basic Economic Concepts Essential Question 6Basic Economic ConceptsHow do the various economic systems (traditional, command, market, and mixed) affect private ownership and the role of government?
43Economic Models Capitalist Model: Nations are democracies where the political power is in the hands of the people.Capitalism: Economic system characterized by private ownership of businesses and marketplace competition.Also known as a free enterprise system.Predominately uses a market economic system.
44Economic Models Socialist Model: Usually has democratic political institutions.Socialist: Economic system characterized by increased government involvement in peoples lives and the economy.Tries to reduce the differences between rich and poor.Key industries are run by the government.Uses a mix of market and command economic systems. The degree of command is directly related to the degree of socialism.
45Economic Models Communist Model: The government runs everything and there is only one political party.Communist: Economic system characterized by a totalitarian form of government.The government decides all aspects of their peoples lives including where they will go to school, live, work, etc.Predominately uses a command economic system.
46Basic Economic Concepts Essential Question 7Basic Economic ConceptsHow do the measurements of an economy relate to the marketing process?
47When is an Economy Successful? Economists use several different indicators and measurements to determine the strength of the economy.
48When is an Economy Successful? Economic MeasurementsProductivity: Output per worker hour usually measured over a designed period of time.Gross Domestic Product (GDP): Measure of the goods and services produced using labor and property located in the country.Gross National Product (GNP): Measure of the goods and services produced by the citizens of a country within the country and abroad.
49When is an Economy Successful? Economic MeasurementsStandard of Living: A measure of the amount of goods and services that a nation’s people have. Reflects quality of life.Inflation: Refers to the rate at which prices rise. Low inflation, 1% - 5%, shows a stable economy.
50When is an Economy Successful? Economic MeasurementsConsumer Price Index (CPI): Measures the change in price over time of 400 specific goods and services used by the average urban household.Unemployment Rate: Low unemployment is a sign of economic expansion, while high unemployment is a sign of an economic slowdown.
51The Business CycleBusiness Cycle: The recurring economic changes over time. It is affected by:Actions of businessesActions of consumersActions of government
52The Business Cycle Expansion: A time of economic prosperity. Economy: GrowingUnemployment: LowProductivity: HighConsumer Spending: HighRecovery: A period ofrenewed economic growth.Economy: Renewed GrowthUnemployment: DecreasingProductivity: IncreasingConsumer Spending: IncreasingTheBusinessCycleRecession: A period ofeconomic slowdown.Economy: SlowingUnemployment: RisingProductivity: DecreasingConsumer Spending: DecreasingTrough: A period oftransition.Economy: Poverty HighUnemployment: HighProductivity: Very LowConsumer Spending: Very Low
53Basic Economic Concepts Essential Question 8Basic Economic ConceptsWhat are the laws of supply and demand and how do they interact to set prices?
54Supply and DemandDemand: The amount of goods and services that consumers are willing and able to buy.
55Supply and DemandLaw of Demand: Price is inversely proportional to demand.P DPRICEQUANTITY
56Supply and Demand Types of Demand Elastic: A small change in price causes a significant change in demand.Inelastic: Any change in price has little to no effect on demand.No acceptable substitute.Price change is small relative to buyer income.Product is a perceived necessity.
57Supply and DemandSupply: The amount of goods and services that producers are willing and able to provide.
58Supply and DemandLaw of Supply: Producers are more willing to supply products in greater amounts when the price is high.P SPRICEQUANTITY
59Supply and Demand Surplus: Occurs when supply exceeds demand. PRICE QUANTITY
60Supply and Demand Shortage: Occurs when demand exceeds supply. PRICE QUANTITY
61Supply and DemandEquilibrium: Occurs when the amount of product supplied equals the amount of product demanded.Also known as market price.PRICEQUANTITY
62Basic Economic Concepts Essential Question 9Basic Economic ConceptsHow do the functions of pricing affect economic markets?
63Functions of PricingPrice plays a very important role in the economic system of modern economies. The major functions of price include:Distributive function: Answers for whom to produce and where to produce. Goods and resources are limited, but needs and wants are unlimited; so price will determine affordability and those with the buying power will purchase the limited goods and resources.
64Functions of PricingAllocative function: Answers what, when, and for whom to produce.Signaling function: Prices signal the demand and supply situations. Shortages are reflected in high prices, and surpluses are reflected in lower prices.Equilibrating function: Prices facilitate matching of demand and supply therefore clearing the market.
65Functions of PricingRationing function: Again a question of limited resources vs. unlimited wants.Transmission function: Prices transmit information to various actors in the market thus enabling them to make informed decisions on what and when to buy and sell.Provision of incentive: Prices act as incentives/disincentives to consumers and producers.
66Functions of PricingEnhancing marketing efficiency and performance: Correct price signals will oil the marketing machine. However, wrong signals on price will hinder smooth functioning of the market thus resulting in poor performance.
67Functions of PricingPricing determines decision making with respect to the following aspects:Production system: what to produce, by whom, and where to produceIndustrial locationProduct market areas and market boundaries (ISOTIMS and the Law of Market Areas)Isotim: A line drawn about a source of raw materials or a market where transport costs are equal.Law of Market Areas: The boundary line between the territories of two geographically competing markets for like goods.
68Functions of PricingPricing determines decision making with respect to the following aspects:Arbitrage and patterns of trade (Spatial trade patterns)Arbitrage: The practice of taking advantage of a price difference between two or more markets by striking a combination of matching, simultaneous deals that capitalize upon the imbalance with the profit being the difference between the market prices.Temporal arbitrage (STORAGE) transportation and processing. However, facilitating functions are composed of standardization, financing, risk bearing and market intelligence.