MARKETING BEGINS WITH ECONOMICS CHAPTER 03 4/16/2017 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 © South-Western Publishing MARKETING

SCARCITY AND PRIVATE ENTERPRISE GOALS for Lesson 3.1 Identify the basic economic problem. Describe how America’s private enterprise economy works. © South-Western Publishing

The Importance of Economic Understanding The basic economic problem– scarcity (unlimited needs and wants, combined with limited resources) Who makes the decisions? Controlled economy—government (Cuba?) Regulated economy—shared (between gov’t. and other groups or individuals) Free economy—individuals (no gov’t. regulation) Mixed economy—shared by government and private enterprise (us?) © South-Western Publishing

America’s Private Enterprise Economy Characteristics Resources of production are owned and controlled by individual producers Producers use the profit motive in deciding what to produce Consumers want to satisfy a need Consumers use value in deciding what to consume VALUE vs. PROFIT MOTIVE (gov’t. only involved if harm possible) © South-Western Publishing

America’s Private Enterprise Economy Consumers – limited resources to satisfy needs Demand – the relationship between the quantity of a product consumers are willing and able to buy at a certain price Gather information and conduct research © South-Western Publishing

America’s Private Enterprise Economy Producers – sell products and service to consumers for a profit Supply – the relationship between the quantity of a product that producers are willing and able to provide at a price Research consumer wants and needs © South-Western Publishing

OBSERVING THE LAW OF SUPPLY AND DEMAND GOALS for Lesson 3.2 Explain microeconomics and concept of consumer DEMAND. Identify factors that affect SUPPLY and its relationship to DEMAND. © South-Western Publishing

Macroeconomics Macroeconomics studies the economic behavior and relationships of the entire society. © South-Western Publishing

Microeconomics Microeconomics is the study of relationships between individual customers and producers. © South-Western Publishing

Question Why is it more beneficial for marketers to study the microeconomics rather than macroeconomics? Give specific examples. © South-Western Publishing

Microeconomics and Consumer Demand Factors affecting demand If a need or want is particularly important or strong Available supply of product/service to satisfy consumer needs Availability of alternatives Analyzing demand curves Demand curve Law of demand Price increases, fewer buy Economic market All the consumers who will buy a product/service. $P Q © South-Western Publishing

Demand Curve for Movies Price $10.50 9.00 7.50 6.00 4.50 3.00 1.50 1,000 Quantity 2,000 3,000 4,000 5,000 6,000 7,000 © South-Western Publishing

Supplying the Product Several factors that influence what and how many products or services a business will produce. Profit Handling the competition (amount and type of) Use resources available to develop products and services (economic resources) Analyzing supply curve Supply curve (relationship between P and Q) Law of supply (price up, produce more) (down, less) © South-Western Publishing

Supply Curve for Watches Price $105 90 75 60 45 30 15 10,000 Quantity 20,000 30,000 40,000 50,000 60,000 70,000 80,000 © South-Western Publishing

Intersecting Supply and Demand Market price (or equilibrium price)…THE PRICE AT WHICH SUPPLY MEETS DEMAND! © South-Western Publishing

Demand Curve for Notebook Computers Price $2,100 1,800 1,500 1,200 900 600 300 100 Quantity 200 400 500 700 800 © South-Western Publishing

Supply Curve for Notebook Computers Price $2,100 1,800 1,500 1,200 900 600 300 100 Quantity 200 400 500 700 800 © South-Western Publishing

Market Price for Notebook Computers $2,100 1,800 1,500 1,200 900 600 300 100 Quantity 200 400 500 700 800 Demand Supply Equilibrium’ Price (or Market Price) © South-Western Publishing

In Groups Using Newspapers, find one specific example for each of the factors that affect demand, 1. convenience or availability, 2. supply, 3. availability of alternatives Example – 5 cell phone offers in one Sunday newspaper might cause consumers to wait and research the best value. © South-Western Publishing

TYPES OF ECONOMIC COMPETITION GOALS for Lesson 3.3: Define pure competition and monopoly. Explain the characteristics of oligopolies and monopolistic competition. © South-Western Publishing

All-Out (PURE) Competition… Pure competition – large # of SUPPLIERS, offering similar products. Businesses have no control over prices (one supplier can’t raise (control) price) See figure 3-6 (2 slides from now) Examples: ag. products, milk, blank CD’s Horizontal demand curve D © South-Western Publishing

… or No Competition At All (MONOPOLY) One supplier! Unique product! Consumer Must accept price! – NO COMPETITION! Gov’t. usually controls…like utilities! Or cable TV! Vertical demand curve D © South-Western Publishing

Demand Curve for One Company in Pure Competition Any thoughts…comments?… Price Quantity © South-Western Publishing

Demand Curve for a Monopoly Price Quantity Is Microsoft a monopoly? How bout diamonds? © South-Western Publishing

Between the Extremes Oligopolies (such as the airline industry) Def. = few (?) businesses, similar products IF those few cooperate, they can act like a MONOPOLY IF those few compete, they can act like PURE COMPETITION Auto manufacturers, computer manufacturers, taxis, movie theaters, banks, hospitals © South-Western Publishing

Demand Curve for One Company in an Oligopoly Price Quantity REASON: one company cannot really influence pricing © South-Western Publishing

Demand Curve for the Industry in an Oligopoly Price Quantity Similar to monopoly…especially if the few businesses cooperate! © South-Western Publishing

Monopolistic competition – many firms, somewhat different product. (most common form of bus.) Most retailers Businesses have little price control Almost flat (horizontal) demand curve Consumers have several choices – some have major differences, some minor. Examples: restaurants, malls, shoes, cosmetics © South-Western Publishing

Demand Curve for Monopolistic Competition with Few Product Differences Price Quantity © South-Western Publishing

Demand Curve for Monopolistic Competition with Greater Product Differences Price Quantity © South-Western Publishing

Understanding the competition FIRST! Read “elasticity of demand” on p. 73 Marketers want to be different, and better = more control of price in the marketplace. © South-Western Publishing

ENHANCING ECONOMIC UTILITY GOALS for Lesson 3.4 Define various types of economic utility. Explain how marketers use utility to increase customer satisfaction. © South-Western Publishing

Utility Means Satisfaction Economic utility – the amount of satisfaction a consumer receives from the consumption of a particular product or service. Businesses try to increase utility to improve the likelihood of consumer purchase/consumption. Form utility Time utility Place utility Possession utility Read on p. 75-76 © South-Western Publishing