Marketing &

Economics
Chapter 3
Genius is 1% inspiration and 99% perspiration.
Accordingly a genius is often merely a talented
person who has done all of his or her homework.
~Thomas Edison~

What is an economy?

Economy or Economic System

Organized

its people

Resources
Factors

of Production

Land
Labor
Capital

way a nation provides for the needs and wants of

Infrastructure
Physical development of a country

Entrepreneurship

Scarcity

Difference

between needs and wants and available resources

How does the economy

work?

Economic systems answer 3 questions

Which goods and services should be produced?
How should the goods and services be produced?
For

whom should the goods and services be

produced?

Types of Economies
Type of
Economy

Which goods
and services
are produced?

How should
the goods and
services be
produced?

For whom
should the
goods and
services be
produced?

Traditional

Little Choice
Based on family
traditions

Based on family
tradition

Family tradition
dictates who buys
and sells and where
the exchange takes
place.

Consumers Decide

Business decides

People who make

money are able to
buy

One person or group

of government

Government runs
business

Government decides
who receives what is
produced

Example Burma& Ivory Coast

Market
Example United States

Command
Example China & Cuba

Types of Economies

Mixed Economies
The

US is a MIXED Economic System

Food and Drug Administration

Labor Laws
Medicare

Can a 15 year old work after 7 PM on a

school night?
http://www.youthrules.dol.gov/know-the-limits/14-15.htm

Types of Economies
Economic System

Political System

Market Economy

Capitalism

Command Economy

Communism

Market & Command

Socialism

Political Systems Types

Type of
Economy

Capitalism
Example Japan & United
States

Communism
Example Cuba & North Korea

Socialism
Example Canada & Germany

Business
Characteristic
s

Government
Involvement

Other
Characteristic
s

Marketplace
competition and
private ownership of
businesses

Concerned about its

people and care for
those who cannot
care for themselves

Government is
typically a
democracy, power is
with the people

No private
ownership of
property or capital

Authoritarian
controls all
production goods
are available when
needed

All who can work are

assigned jobs;
medical care is free;
no financial
incentives

Government runs
key industries and
makes economic
decisions

Most have
democratic
institutions; meet the
needs of all and
employ many

More social services

at free or low cost;
standard of living for
everyone; higher
taxes for all

The Economy & Marketing

An economy has 3 goals

Increase

productivity

Decrease

unemployment

Maintain

stable prices

The Economy & Marketing

How is productivity measured?

Output

Total output divided by number of employees

Gross

per worker

domestic product (GDP)

Output of goods and services produced by labor and productivity in a

country
US GDP was 15.586 Trillion in June 2011

Unemployment

Rates

# in the labor force divided # unemployed

Measures the effect of economic events
Unemployment is at 7.8% (October 2012)

The Economy & Marketing

How is productivity measured?

Gross

National Product (GNP)

Measures the total dollar value of goods and services produced by a

nation, including US citizens and companies in other countries
With GNP, it is no where the production takes place but who is
responsible for it. GDP is DOMESTIC only (at home).
US GNP was 14.01 Trillion in 2011

Standard

of living

the level of wealth, comfort, material goods and necessities

available to a certain socioeconomic class in a certain geographic
area
GDP or GNP divided by population

The Economy & Marketing

Inflation

Rising prices
Low is good, double digit is bad
September, 2012 Inflation was at 2.0%

surges in the
price of oil,
foodstuffs and
gold

How Much Did Things

Cost in 1964?

Some examples of items in 1964 from the American Heritage Magazine

The Cost of Living article

The Economy & Marketing

Measurement Indexes
Consumer

Change in prices over time for 400 retail goods and services used
by average household
Also called Cost of Living Index

Producer

Price Index

Price Index

Wholesale price index (leads CPI)

The Business Cycle

Expansion
Economy

Low unemployment
Increase in output of goods and services
High consumer spending
Good time for new business start up

Expands

is flourishing

until it reaches a peak

End of expansion and beginning of recession

The Business Cycle

Recession
Period

of economic slowdown for 2+ quarters

(6months)

Companies reduce workforces

Consumers have less to spend
Producers make less goods and services
Business expansion and R&D are put on hold

Begins

immediately after a peak and ends when it

reaches a trough

When the economy reaches its lowest point in a recession

The Business Cycle

Depression
A

period of prolonged recession

Nearly impossible to find a new job; unemployment high

Many businesses forced to close
Consumer spending is very low
Poverty results; The Great Depression of the 1930s

The Business Cycle

Recovery
Significant

period of renewed economic growth

following recession or depression

GDP begins to increase; more production

People find jobs
Demand for goods increases

Where

the cycle begins again

The Business Cycle

Expansion

The economy
begins to grow
again; jobs are
created and
consumers begin
to spend; may
last a long time

Recovery

Low point; making way to

recovery economy stops slowing
and signs of a recovery appear

Unemployment is low and

consumer spending is high;
businesses prosper; peak marks
the end of this phase

Recession

Trough

The economy
slows; businesses
lay off workers;
consumer
confidence is low;
depression is a
long period of
recession

The Business Cycle

Recession Marketing
Marketers must be creative and consider the
economic status when selling goods and
services