MARKETING BEGINS WITH
ECONOMICS
CHAPTER 3
4 TYPES OF ECONOMIES
1. Controlled economy
 The
government answers all three economic questions
 It attempts to own & control important resources and make
decision on what is produced and consumed
2. Free Economy (AKA Market Economy)
 Resources are owned by individuals rather than the government
 The market provides answers to the 3 questions above No Government
involvement
4 TYPES OF ECONOMIES (CON)
3. Mixed Economy
• Some goods and services are provided by the
government and some by private enterprise
4. America’s Private Enterprise Economy
• Private enterprise is based on independent decisions by
businesses and consumers with only a limited
government role regulating
• Resources and production are owned by individuals
• Profit motive – obtain the greatest profit
• Value – individual view of the worth of a product or
service
ECONOMICS
Macroeconomics
Microeconomics
1.Macroeconomics- studies
the economic behavior and
relationship of an entire
society
1.Microeconomics- examines
relationships between
individual consumers and
producers
 It looks at the big picture –
helps determine if society’s
resources are being used
efficiently
 Studies the decisions of all
consumers and producers and
the effects on society
 Looks at small parts of the total
economy
 Studies how individuals make
decisions about what to produce &
consume
SUPPLY AND DEMAND CURVES
Supply Curve
Supply Curve- the relationship between
price and quantity supplied
 As price increases, producers will
make more
 As price decreases, fewer are made
Demand Curve
Demand Curves- the relationship
between price and quantity demanded


As price increases fewer people buy
tickets
As price decreases more tickets are sold
^ That relationship is known as the
law of demand
MARKET PRICE
Intersecting supply and demand

Market Price – the point at which the demand
curve and supply curve intersect

The price that Producers will be
inclined to use
Indicates Market
Price and Market
Quantity (How much
producers will make)
TYPES OF ECONOMIC COMPETITION
 Two characteristics are important to determine the type of
economic competition in a specific market
1. The number of firms competing in the market
2. The amount of similarity between the products of competition business
 There are four forms of economic competion
FOUR FORMS OF ECONOMIC
COMPETITION
1. Pure competition- few markets with a large # of suppliers with
similar products
o
o
o
Consumers have a great deal of control over choices and prices
Because businesses are unable to offer products that consumers view as
unique, they must accept the prices that consumers are willing to pay,
or the consumer will buy from another business
Some examples include: agricultural products such as corn, rice, wheat,
and livestock
 Each producers products are just like every other producers
 There are many producers so consumers will have no difficulty finding a
business that will sell the product
FOUR FORMS OF ECONOMIC
COMPETITION
2. Monopoly- a type of market in which one supplier offers a
unique product
o
In this market, the supplier has almost total control, and the consumers
will have to accept the suppliers price
 This occurs because of lack of competition
o
o
o
o
Governments attempt to control monopolies
Some examples are: utility companies that supply electricity, gas or
water
There is only 1 supplier of each product and it would be very inefficient
to have several companies extend gas & water lines to every home
Once a home is supplied with utilities it would be easy for them to raise
the price, and the consumer would have to pay the higher price – so the
government agencies regulate the prices that can be charged
FOUR FORMS OF ECONOMIC
COMPETITION
3. Oligopolies- few businesses offer very similar products and
services
o
o
o
o
o
Ex- The airline industry – there are only a few large airlines competing
for national travel in the US
One airline will not succeed in increasing prices alone
If the airline industry wants higher prices, competing companies need
to cooperate in raising their prices as well
Depending on the industry the government may attempt to regulate that
type of activity, by making it illegal for businesses to work together to
control prices
Price fixing- is an agreement between business competitors to sell the
same product or service at the same price
FOUR FORMS OF ECONOMIC
COMPETITION
4. Monopolistic Competition- many firms compete with products
that are somewhat different
o
o
o
o
With more competitors and only minor differences, businesses will
have very limited control
When you have choices as a consumer, you usually select the one
providing the most satisfaction at the best value
Examples include: restaurants, movie theaters, shopping malls, and
athletic stores
If your products are similar with other businesses you have to follow
the status quo, but if your product is new and unique then you have
more freedom to do as you wish
QUESTIONS
• The USA has many characteristics of a market economy
• The cost of resources is different dependent upon what
economic system a society uses.
• Individuals who purchase products and services to satisfy
needs are consumers.
• If they work together, businesses in an oligopoly can
have an abundance of control over price.
• If a business operating as a monopoly that is
unregulated by the government, it can charge any
price it chooses. The consumer either pays the price set
by the business or goes without.
• The profit motive is the use of resources to obtain the
greatest profit.
QUESTIONS
• The point where supply and demand for a product or
service is equal is called market price.
• If consumers believe there is only one product or brand
that meets their needs, they will usually be willing to pay
a higher price.
• If a need or want is particularly important or strong, a
consumer might be willing to spend more money to
satisfy it.
• Marketers are most concerned with microeconomics
• Economic resources are classified as natural resources,
capital, equipment, and labor.
• Value is an individual view of the worth of a product or
service.