CONTENT/TEACHING OUTLINE
COMPETENCY:
3.00
Understand economic principles and concepts fundamental
to marketing.
OBJECTIVE:
3.01
Recognize terminology related to economics.
A. Recall economic terms.
1. Economics: The study of how to meet unlimited wants and needs of a society
with its limited resources.
2. Scarcity: A condition in which more goods and services are desired than are
available. Scarcity forces people, businesses, and nations to make choices.
Unlimited wants with limited resources results in scarcity, also referred to as a
shortage. For example, Hurricane Michael hit the coast of North Carolina.
Twenty percent of the homes in the Wilmington area were left with no electricity
forcing people to go to stores to purchase batteries. This resulted in stores
running out of batteries.
3. Surplus: A condition where consumers desire less goods and services than
were produced, also referred to as an overage. For example, after the Fourth of
July, Wal-Mart put all of their left over holiday merchandise on sale for 90% off.
B. Recall types of economic resources (factors of production).
1. Economic resources: Includes land, labor, and capital resources which can be
used to produce the goods and services that people consume. This is also
known as the factors of production.
2. Land: Natural resources including everything contained in the earth and found in
the sea. For example, oil, minerals, gas, and coal.
3. Labor: Human resources including all workers in the economy. For example,
full- and part-time workers, managers, public employees, and professional
people.
4. Capital: The money needed to start and operate a business or the products used
in the production of other goods. For example, purchasing lawn equipment to
start a lawn care business or securing a warehouse for storing the equipment.
5. Entrepreneurship: Incorporates the skills of people who are willing to take the
risk of starting their own business. Entrepreneurs organize economic resources
in order to create goods and/or services needed and desired in an economy. For
example, Christy uses her horticulture background to begin her summer lawn
care business.
C. Recognize types of economic utility.
1. Utility: Refers to the added value or usefulness of a product.
2. Form utility: The value added by changing raw materials or putting parts together
to make them more useful. For example, combining the ingredients necessary to
make a pizza.
3. Place utility: The value added by having a product where customers can buy it.
For example, selling pizzas in the school cafeteria.
4. Time utility: The value added by having a product at a certain time of year or a
convenient time of day. For example, offering pizzas for sale during the school
lunch hours.
Marketing
Summer 2006
42
CONTENT/TEACHING OUTLINE
COMPETENCY:
3.00
Understand economic principles and concepts fundamental
to marketing.
OBJECTIVE:
3.01
Recognize terminology related to economics.
5. Possession utility: The value added by exchanging a product for monetary value.
For example, the cafeteria will accept cash or a student debit card in exchange
for the pizza.
6. Information utility: The value added by communicating with the customer. For
example, sending out fliers for a new pizza restaurant to all homeowners who live
in a five-mile radius of the restaurant.
Marketing
Summer 2006
43
CONTENT/TEACHING OUTLINE
COMPETENCY:
3.00
Understand economic principles and concepts fundamental
to marketing.
OBJECTIVE:
3.01
Recognize terminology related to economics.
A. Explain supply and demand.
1. Supply: The amount of goods producers are willing and able to produce and sell
at a given price during a certain period of time. Producers prefer to supply when
the price is high; this is known as a sellers’ market. For example, when a popular
music artist releases a new CD, producers will produce more because
consumers are willing to pay full price.
2. Demand: A consumer’s willingness and ability to buy products at a given price
during a certain period of time. Consumers prefer to buy when the price is low;
this is known as a buyers’ market. For example, Zach makes minimum wage
and prefers to purchase CDs when they go on sale.
3. The law of supply: With all other factors being equal, as the price of a product
increases, the quantity supplied will increase, and as the price of a product
decreases, the quantity supplied will decrease.
4. The law of demand: With all other factors being equal, as the price of a product
increases, consumer demand for the product decreases, and as the price of a
product decreases, consumer demand for the product increases.
B. Summarize surplus, shortage, and equilibrium.
1. Surplus: When supply exceeds demand.
a. Can occur when price is too high.
b. Can occur when customers choose a competitor’s product.
2. Shortage: When demand exceeds supply, also referred to as scarcity.
a. Producers can increase prices and customers may continue to purchase the
product.
b. A shortage of a product may result in a customer purchasing a substitute
product.
3. Equilibrium: Occurs when supply and demand are equal.
a. Both the producer and customer are satisfied and agree upon a price.
b. People’s wants and needs are met and at the same time the supplier’s needs
are met.
C. Explain elasticity.
1. Elasticity: The degree to which demand for a product is affected by its price.
a. Elastic demand: Refers to how changes in the price of a product result in a
change on the demand for that product. For example, when the price of a
cheeseburger is reduced, demand may increase. If the price of a
cheeseburger increases, demand may decrease.
b. Inelastic demand: Refers to how changes in the price of a product have very
little affect on the demand for that product. For example, some people might
be willing to pay any price for gas.
2. Factors that affect the elasticity of demand.
Marketing
Summer 2006
44
CONTENT/TEACHING OUTLINE
COMPETENCY:
3.00
Understand economic principles and concepts fundamental
to marketing.
OBJECTIVE:
3.01
Recognize terminology related to economics.
a. Availability of substitutes. If a substitute is easily obtainable, demand
becomes more elastic. For example, I prefer Pepsi but if Coke is on sale, I
will buy Coke.
b. Brand loyalty. Many customers will only purchase a certain brand. In
general, brand loyal customers will accept no substitutes. In this situation,
demand becomes inelastic. For example, if someone is brand loyal and only
purchases Gatorade, he/she will purchase Gatorade even when the price is
significantly higher than the price of Powerade.
c. Price relative to income. When an increase in the price of a good or service
does not have a major impact on a customer’s budget, the demand is usually
inelastic. For example, if the price of Orbit gum increases from $0.99 to
$1.29, this has little impact on the customer’s budget. In this case the
demand is inelastic. When an increase in the price of a good or service has a
major impact on a customer’s budget, the customer most likely will no longer
buy a product. In this case, the demand is elastic. For example, a Honda
Accord has a price increase of $2,000. This would have a major impact on a
household income of less than $20,000 per year. In this case, the demand is
elastic.
d. Luxury vs. necessity (want vs. need). When a product is a necessity, demand
is usually inelastic. For example, purchasing medicine for a sick child would
be a necessity. When a product is a luxury, demand is most likely to be
elastic. For example, going out to eat versus fixing dinner at home would be
a luxury.
e. Urgency of purchase. If a purchase must be made immediately, demand
tends to be inelastic. For example, if a car breaks down the owner may need
to get it fixed ASAP.
A. Summarize economic measurements.
1. Labor productivity: The amount produced per worker measured during a specific
time period. Training workers or providing incentives can increase productivity.
If workers are more productive, a company’s profits can increase. For example,
training employees to perform a specific task such as packaging computers in a
box can allow the worker to complete this one task more efficiently than if the
worker had several different responsibilities.
2. Gross domestic product (GDP): A measure of the goods and services produced
IN a country.
3. Gross national product (GNP): The sum of the dollar value for products
produced BY a country. GNP is different from GDP because it includes the
dollar value for products produced by U.S. citizens and companies that are
abroad. For example, Briggs and Stratton (produce engines for lawn mowers)
have plants in the United States as well as Japan. The production of engines in
Japan is included in the GNP but not in the GDP.
Marketing
Summer 2006
45
CONTENT/TEACHING OUTLINE
COMPETENCY:
3.00
Understand economic principles and concepts fundamental
to marketing.
OBJECTIVE:
3.01
Recognize terminology related to economics.
4. Standard of living: The amount of goods and services that a nation’s people
have. For example, the standard of living in the United States is higher than the
standard of living in Ethiopia.
5. Inflation rate: The rate at which prices are rising. A stable economy has an
inflation rate of 1-5% per year. The government tries to control the inflation rate
by raising interest rates which discourages borrowing money.
6. Unemployment rate: The number of people who are willing and able to work but
cannot find a job. The unemployment rate can be determined by dividing the
number of unemployed workers by the total number of people who are able and
willing to work (including both employed and unemployed).
B. Compare phases of the business cycle.
1. Business cycle: The movement of an economy through four recurring phases –
expansion, recession, depression, and recovery. The business cycle may also
be called the economic cycle.
2. Expansion
a. Highest period of economic growth
b. Low unemployment
c. High production of goods and services
d. High consumer spending
3. Recession
a. Economic slowdown
b. Rise in unemployment
c. Production slows down
d. Decrease in consumer spending
4. Depression
a. Prolonged recession
b. High unemployment
c. Drastic decrease in production of products
d. Extremely low consumer spending
e. Poverty can result
5. Recovery
a. Renewed economic growth
b. Increase in employment
c. Increase in production of goods and services
d. Increase in consumer spending
e. Moderate business expansion
C. Interpret the three economic questions.
1. What goods and services should be produced?
a. Who makes the decision of what goods and services should be produced?
b. Is it based on the way things have been done for years, the people, a dictator,
or elected government representatives?
Marketing
Summer 2006
46
CONTENT/TEACHING OUTLINE
COMPETENCY:
3.00
Understand economic principles and concepts fundamental
to marketing.
OBJECTIVE:
3.01
Recognize terminology related to economics.
2. How should the goods and services be produced?
a. Is it based on tradition?
b. Does each business make the decision?
c. Does the government make the decision dictating how the goods and
services should be produced?
3. For whom should the goods and services be produced?
a. Is it based on the tradition of who has always purchased the products?
b. Do individuals decide what to buy and how much they are willing to pay
based on how much money they make?
c. Does the government make the decision on who can purchase the products
or who will be given the products?
D. Compare economies.
1. Traditional economy: The three economic questions are answered by how things
have always been done. Tradition decides what, how, and for whom goods and
services should be produced. For example, the Amish community and Indian
Reservations.
2. Market economy: There is no government involvement in answering the three
basic economic questions; the market answers them. Consumers decide what
should be produced. Businesses decide how products will be produced. Who
receives the products is determined by the people who have the money to pay
for the products.
3. Command economy: The government answers the three basic economic
questions. The government officials or leaders decide what should be produced.
The government runs the businesses and employs the workers. The government
also decides who will receive products.
4. Mixed economies: Economies that are not pure market systems, nor completely
controlled by the government. They are a mix or blend of the two. Most
economies presently are mixed economies.
a. Capitalism: The people elect the government officials who represent their
interests. For example, the United States and Japan.
b. Communism: Countries that have a government run by one political party
which controls everything. People are assigned jobs. Students are told what
type of schooling they will receive. People are told where to live. People do
not pay for medical care. There is little freedom of choice. The number of
communist countries is declining. For example, Cuba, North Korea, and
Vietnam.
c. Socialism: Countries that are capitalistic with increased government
involvement. The government tries to reduce the differences between the
rich and poor. The socialist model is based on the welfare of the people. For
example, Canada, France, Germany, and Great Britain.
E. Explain free enterprise.
Marketing
Summer 2006
47
CONTENT/TEACHING OUTLINE
COMPETENCY:
3.00
Understand economic principles and concepts fundamental
to marketing.
OBJECTIVE:
3.01
Recognize terminology related to economics.
1. Free enterprise encourages individuals to start and operate their own business
with limited government involvement.
2. It allows the market to determine prices through supply and demand.
3. The free enterprise system is also referred to as private enterprise.
F. Summarize the principles of a free enterprise system.
1. Freedom of ownership: The ability to choose a house, car, job or business. For
example, Evadale likes golf so she opens a driving range. However, there are
restrictions on how and where her business can operate. For example, if the
area is zoned as residential, she cannot open her driving range in that area.
2. Competition: A rivalry between two or more businesses to gain as much of the
total market sales or customer acceptance as possible. It helps to maintain
reasonable prices, provide consumers with new and improved products, and
results in a wide selection of products from which to choose. It forces
businesses to operate efficiently.
a. Direct competition: Two or more companies that utilize the same type of
business format. For example, McDonalds versus Burger King.
b. Indirect competition: Two or more companies that employ different types of
business formats to sell similar goods. For example, McDonalds versus
Applebee’s.
c. Price competition: Focuses on the selling price of a product. Consumers
prefer to buy products that are lowest in price. For example, Wal-Mart
promotes its company as having great value at every day low prices.
d. Non-price competition: Based on factors that are not related to price. Nonprice competition includes the quality of products, customer services,
business location, business reputation, and the qualifications of the
salespeople. For example, shopping at Nordstrom’s because of their
outstanding customer service.
e. Monopolies: When one company has exclusive control over a product or the
means of producing it. For example, there may be only one gas station or
grocery store in a small town.
3. Risk: The potential for loss or failure. For example, when investing in a new
business venture, there is no guarantee of success.
4. Profit: The money earned from conducting business after all costs and expenses
have been paid.
a. Profit for many businesses is 1-5% of sales.
b. Ninety-five to ninety-nine percent of the selling price goes to pay costs,
expenses and business taxes.
A. Explain sole proprietorships.
1. Sole proprietorship: A business owned and operated by one person. Seventy
percent of all businesses in the United States are sole proprietorships. For
example, Wanda is the owner of The Village Store.
Marketing
Summer 2006
48
CONTENT/TEACHING OUTLINE
COMPETENCY:
3.00
Understand economic principles and concepts fundamental
to marketing.
OBJECTIVE:
3.01
Recognize terminology related to economics.
2. Advantages
a. Ease of startup.
b. Limited government regulations including taxes. Sole proprietorships are
taxed less than other forms of business ownership.
c. All profits go to the owner.
d. Freedom in making business decisions.
3. Disadvantages
a. Unlimited liability. The business owner is responsible for all business losses
including the initial investment and the ability of the owner to pay. This may
include using their personal assets. For example, Joanne invests $10,000 in
her flower shop. In two years, her business debts exceed $50,000. She is
responsible for all debts incurred by her flower shop. If the business does not
have the money to pay these debts, she must use her personal finances.
b. The owner is solely responsible for all aspects of the business including skills
and finances. For example, Calvin is not comfortable with the accounting and
record keeping for his store, so he hired an accountant to help him with
quarterly and end of year taxes.
c. Life of the business is limited to the life or interest of the owner.
B. Explain partnerships.
1. Partnership: A business owned and operated by two or more people. Less than
10% of all businesses in the United States are partnerships. For example, Sean
and Omar own and operate a music store in a local mall.
2. Types of partnerships.
a. General partnership.
i. An agreement in which both partners share equally in the profit and/or loss
of the business.
ii. Each partner is liable for all debts incurred by the business.
b. Limited partnership
i. Each limited partner is liable for any debts of the business up to the
amount of his/her investment.
ii. Limited partnerships must have at least one general partner who has
unlimited liability.
3. Advantages
a. Relatively inexpensive to start.
b. Combined financial resources and knowledge.
c. Shared management responsibilities.
d. Increased potential for profits.
e. Shared responsibility for risk.
f. Taxed less than a corporation.
Marketing
Summer 2006
49
CONTENT/TEACHING OUTLINE
COMPETENCY:
3.00
Understand economic principles and concepts fundamental
to marketing.
OBJECTIVE:
3.01
Recognize terminology related to economics.
g. A change in ownership does not alter the continuity of the business. For
example, if Sean wants to sell his part of the music store, Omar has the
option to buys Sean’s part, or find another partner.
4. Disadvantages
a. Partners may disagree on business decisions.
b. The decision or action of one partner is legally binding for the other partner,
including financial decisions.
c. If one partner leaves or dies, the business must be reorganized as a new
partnership.
C. Explain corporations.
1. Corporation: A business owned by stockholders. For example, Microsoft is
owned by the thousands of people who purchase stock in Microsoft.
2. A corporation is a legal entity that is chartered by the state in which the business
is located.
3. Boards, directors, and officers manage the daily operations of a corporation.
4. The types of corporations include:
a. Private (closed) corporations do not offer shares of stock for sale to the
general public.
b. Public (open) corporations offer shares of stock for sale to the general public.
5. Advantages
a. Delegation of specific management skills.
b. Limited liability for stockholders.
c. Easier to secure capital.
d. Stockholders can easily enter or leave the business by purchasing or selling
stock.
6. Disadvantages
a. Government regulations.
b. Complex to start up and dissolve.
c. Double taxation. The corporation is taxed on their profits and once these
profits are dispersed to the stockholders through dividends, the stockholders
are taxed as well.
d. Complex record keeping.
D. Explain limited liability companies (LLC).
1. LLC: A combination of a partnership and a corporation.
2. Advantages
a. Pass-through taxation. The earnings of the LLC are taxed only once. This is
similar to taxation of a partnership or sole proprietorship.
b. Limited liability. Owners are not individually responsible for the debts of the
LLC.
c. Flexibility in structure and management of the business.
Marketing
Summer 2006
50
CONTENT/TEACHING OUTLINE
COMPETENCY:
3.00
Understand economic principles and concepts fundamental
to marketing.
OBJECTIVE:
3.01
Recognize terminology related to economics.
3. Disadvantages
a. Expense of start-up.
b. Extensive record keeping requirements.
c. If a member wants to leave the LLC or if he/she dies, it can result in
dissolving the LLC.
Marketing
Summer 2006
51