ECONOMIC ANALYSIS IN MARKETING

ECONOMICS What is Economics? -The study of how people allocate resources, OR how people make choices

WHAT IS AN ECONOMY? How a nation / government provides for the needs and wants of its people.

WHAT IS AN ECONOMY? (CONTINUED) A nation’s economy determines: What goods and services are produced? How are they produced? How are goods and services distributed? (Who gets what?)

WHAT IS AN ECONOMY? (CONTINUED) Nations have resources. Resources are everything that is used to produce goods and services.

TYPES OF RESOURCES There are several types of resources: 1.Natural 2.Human 3.Capital 4.Entrepreneurship

FACTORS OF PRODUCTION All of these resources are called “factors of production.”

PRODUCTIVITY Amount of output per worker per hour, measured over a set period of time. Governments measure a nation’s productivity (and thus its economy) through its GDP (gross domestic product) and GNP (gross national product.)

GROSS DOMESTIC PRODUCT The output of goods and services produced by labor and property within a country.

GROSS NATIONAL PRODUCT Total value of all goods and services produced by a nation, including those produced abroad. PPP converts a country’s currency to the same purchasing power as a US $

WHAT IS PER CAPITA GDP? factbook/rankorder/2004rank.html Per capita GDP

MEASURING THE ECONOMY - THE BUSINESS CYCLE 4 stages: Expansion Recession Trough Recovery

WHAT IS AN ECONOMY? (CONTINUED) Scarcity – an important economic concept. It’s the difference between wants and needs, and available resources. (What you need / want v. what you have / can get.) Because scarcity exists, there is a need for marketing.

WHAT IS AN ECONOMY? (CONTINUED) Scarcity – an important economic concept. It’s the difference between wants and needs, and available resources. (What you need / want v. what you have / can get.) Because scarcity exists, there is a need for marketing.

TYPES OF ECONOMIES There are 4 basic types or economies: 1.Traditional economy – few choices. People do what their parents do/did. People make enough for themselves and perhaps a small amount to barter / sell. Tradition decides who gets what. (Doesn’t need marketing)

TYPES OF ECONOMIES (CONTINUED) There are 4 basic types or economies: 2. Market Economy – No government involvement in economic decisions. The government lets the market decide all 3 questions. Consumers decide what gets produced. Businesses decide how goods and services are produced. (most efficient way.)

TYPES OF ECONOMIES (CONTINUED) 3. Command Economy - The government makes all the decisions. Government decides what gets produced and how it gets distributed (who gets what); government owns the means of production

TYPES OF ECONOMIES (CONTINUED) 4. Mixed Economy – No economy is pure Market or pure Command. The U.S. government regulates businesses labor laws, OSHA, FDA, environmental laws, etc.) and provides social problems like welfare and Medicaid.

POLITICAL PHILOSOPHIES All economies are mixed, to some extent. A country’s political philosophy determines where the economy falls on the spectrum.

THREE MAIN POLITICAL PHILOSOPHIES Capitalism Communism Socialism

CAPITALISM Marketplace competition. Businesses compete against one another. Political power is in the hands of the people. Examples: U.S., Japan

COMMUNISM Social, poltical, economic philosophy in which the government, usually authoritarian, controls the factors of production No private ownership of property or capital From each according to his abilities, to each according to his needs Examples: Cuba, North Korea

SOCIALISM Greater government involvement in the economy. Government tries to meet everyone’s basic needs High taxes Government owns / runs key industries and makes economic decisions Examples: Canada, Sweden, Germany

SOCIALISM V. CAPITALISM

HOW MUCH MONEY DOES THE GOVERNMENT MAKE?

CAPITALISM Freedom + Competition + Profit Motive

INFLATION  Rising Prices  Measured by the Consumer Price index (“CPI”) – the change in price over a period of time; look at specific consumer goods. Sometimes called the cost of living index.

DEFLATION  Falling Prices  Why are falling prices bad? - People wait to make purchases - Borrowers must pay back loans with Dollars that are worth more

WHAT GOES INTO CPI? FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks) HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) APPAREL (men's shirts and sweaters, women's dresses, jewelry) TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance) MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services) RECREATION (televisions, toys, pets and pet products, sports equipment, admissions); EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories); OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).

UTILITY In marketing, “utility” means adding value to a product. Utilities are the characteristics of a product or service that makes it satisfy consumers’ wants and needs.

5 TYPES OF UTILITY There are 5 types of economic utility involved with all products, in marketing: 1.Form 2.Place 3.Time 4.Possession 5.Information