C H A P T E R 3

MARKETING BEGINS WITH ECONOMICS

4 TYPES OF ECONOMIES

1. Controlled economyThe government answers all three economic questionsIt 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 governmentThe 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

1.Macroeconomics- studies the economic behavior and relationship of an entire society

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

Microeconomics

1.Microeconomics- examines relationships between individual consumers and producers Looks at small parts of the total

economy Studies how individuals make

decisions about what to produce & consume

SUPPLY AND DEMAND CURVES

Supply Curve Demand Curve

Supply Curve- the relationship between price and quantity supplied As price increases, producers will

make more As price decreases, fewer are made

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 market2. 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 productso Consumers have a great deal of control over choices and priceso 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 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 competitiono Governments attempt to control monopolieso Some examples are: utility companies that supply electricity, gas or

watero 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

o 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 Ex- The airline industry – there are only a few large airlines competing for national travel in the US

o One airline will not succeed in increasing prices aloneo If the airline industry wants higher prices, competing companies need

to cooperate in raising their prices as well o 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

o 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 With more competitors and only minor differences, businesses will have very limited control

o When you have choices as a consumer, you usually select the one providing the most satisfaction at the best value

o Examples include: restaurants, movie theaters, shopping malls, and athletic stores

o 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.