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CHAPTER
3
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
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3-1
SCARCITY AND
PRIVATE ENTERPRISE
GOALS
Identify the basic economic problem.
Describe how America’s private
enterprise economy works.
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The Importance of
Economic Understanding
Effective marketing relies on the
principles and concepts of economics
Knowledge of economics & decisions
improve marketing decision making &
results in increased customer
satisfaction & higher profits for the
company
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Basic Economic Problem
 Wants and needs are unlimited – people seldom feel
completely satisfied
 Conversely resources are limited – never enough
available to meet everyone’s needs and wants
 EX- Producing a car
 Producing a car requires a variety of resources: glass, rubber, steel,
plastic
 Each of those resources is in limited supply
 They are also used to produce other items in addition to cars
 In turn, there might not be enough to make as many cars as people
want
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Basic Economic Problem
Scarcity – unlimited wants and needs,
combined with limited resources
 Creates difficult problems for society
 Choices must be made
 Who makes the decision determines the
economic system a society has
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Who Makes the Decisions
 An economy is designed to facilitate the use
of limited resources to satisfy the individual
and group needs of people in the economy
 All economies must answer three questions
1. What goods and services will be produced
2. How will they be produced
3. For whom will they be produced
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Types of Economies
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
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Types of Economies
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
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Types of Economies
Mixed Economy
 Some goods and services are provided by
the government and some by private
enterprise
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Types of Economies
America’s Private Enterprise Economy
(Capitalism)
 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
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America’s Private
Enterprise Economy
Characteristics
 Profit Motive
 Value
 Consumers
 Producers
 Government
Economic forces
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America’s Private
Enterprise Economy
Profit Motive – is the use of resources
to obtain the greatest profit.
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America’s Private
Enterprise Economy
Value – is an individual view of the
worth of a product or service.
 Comparing the cost of something they are
considering purchasing to other available
alternatives.
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America’s Private
Enterprise Economy
Consumers – individuals who purchase
products and services to satisfy needs.
 Demand – is a relationship between the
quantity of a product consumers are willing
and able to purchase and the price.
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America’s Private
Enterprise Economy
Producers – businesses that use their
resources to develop products and
services.
 Supply – is a relationship between the
quantity of a product that producers are
willing and able to provide and the price.
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America’s Private
Enterprise Economy
Government – gets engaged when
consumers or producers are at a
disadvantage and will not receive fair
treatment, or society will be harmed.
 Enacts laws and regulations
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America’s Private
Enterprise Economy
Economic forces
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3-2
OBSERVING THE LAW
OF SUPPLY AND DEMAND
GOALS
Explain microeconomics and the
concept of consumer demand.
Identify factors that affect supply and its
relationship to demand.
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Economics
 Economics attempts to understand and
explain how consumers and producers make
decisions concerning the allocations of their
resources.
 Divided into 2 main levels
 Macroeconomics
 Microeconomics
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Macroeconomics
Macroeconomics studies the economic
behavior and relationships of an entire
society.
 Looks at the BIG picture
 Determines if society’s resources are being used
as effectively and efficiently as possible
 Studies the decisions of all consumers and
producers and the effects on society
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Microeconomics
Microeconomics is the study of
relationships between individual
customers and producers.
 Looks at SMALL parts of the total economy
 Studies how individuals make decisions
about what to produce & consume
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Microeconomics and
Consumer Demand
Factors affecting demand
Analyzing demand curves
 Demand curve
 Law of demand
 Economic market
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Microeconomics and
Consumer Demand
Factors affecting demand
 Importance or strength of your need or
want…ex. baseball game
 Available supply of products and services
to satisfy your needs…ex. Farmers market
 Availability of alternative products that
consumers believe will satisfy their
needs…ex. entertainment
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Microeconomics and
Consumer Demand
 Economist try to determine how much
consumers are willing to pay for various
quantities of products and services.
 Analyzing demand curves
 Demand curve
 Law of demand
 Economic market
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Microeconomics and
Consumer Demand
 Analyzing demand curves
 Demand curve – the relationship between
price and the quantity demanded
 Law of demand – as prices increase
demand decrease, as prices decrease
demand increases
 Economic market – all consumers who
will purchase a particular product or service
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Demand Curve for Movies
Price
$10.50
9.00
7.50
6.00
4.50
3.00
1.50
1,000
2,000
Quantity
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4,000
5,000
6,000
7,000
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Supplying the Product
Handling the competition
Analyzing supply curve
 Supply curve
 Law of supply
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Supplying the Product
 Handling the competition
 Business will try to offer products that can make
money
 Competition is intense – fewer opportunities for
success
 Companies differentiate their product
 Economic resources – classified as natural
resources, capital, equipment, and labor
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Supplying the Product
Analyzing supply curve
 Supply curve – the relationship between
price and quantity supplied
 Law of supply – as prices increase supply
increase, as prices decrease supply
decrease
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Supply Curve for Cell Phones
Price
$105
90
75
60
45
30
15
10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
Quantity
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Intersecting Supply and Demand
Supply curve
Demand curve
Market Price – the point where supply
and demand are equal
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Demand Curve for
Notebook Computers
Price
$2,100
1,800
1,500
1,200
900
600
300
100
200
Quantity (in 000s)
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500
600
700
800
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Supply Curve for
Notebook Computers
Price
$2,100
1,800
1,500
1,200
900
600
300
100
200
Quantity (in 000s)
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500
600
700
800
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Market Price for
Notebook Computers
Price
$2,100
Demand
Supply
1,800
1,500
Market Price
1,200
900
600
300
100
200
Quantity (in 000s)
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500
600
700
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3-3
TYPES OF ECONOMIC
COMPETITION
GOALS
Define pure competition and monopoly.
Explain the characteristics of oligopolies
and monopolistic competition.
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Marketing Matters
With a partner complete marketing
matters on page 72.
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Types of economic competition
 Two characteristics are important to determine the
type of economic competition in a specific market
 The number of firms competing in the market
 The amount of similarity between the products of
competition business
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Types of economic competition
There are four forms of economic
competition
 Pure Competition
 Monopoly
 Oligopoly
 Monopolistic Competition
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Four Forms of economic competition
1. Pure competition- few markets with a large # of suppliers with
similar products
o Consumers have a great deal of control over choices and prices
o 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
o
o
o
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
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Demand Curve for One Company
in Pure Competition
Price
Quantity
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Four Forms of Economic Competition
2. Monopoly- a type of market in which one supplier offers a unique product
o
o
o
o
o
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
Governments attempt to control monopolies
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
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Demand Curve for a Monopoly
Price
Quantity
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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
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Demand Curve for the
Industry in an Oligopoly
Price
Quantity
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Four Forms of economic competition
Monopolistic Competition- many firms compete
with products that are somewhat different
4.
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
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Demand Curve for Monopolistic Competition
with Greater Product Differences
Price
Quantity
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3-4
ENHANCING
ECONOMIC UTILITY
GOALS
Define four types of economic utility.
Explain how marketers use utility to
increase customer satisfaction.
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Utility Means Satisfaction
Economic utility
Form utility
Time utility
Place utility
Possession utility
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