Introductory Economics

Definition, , goods and services, Economic systems, utility, supply and demand, elasticity, factors of production

Why study Economics?? Isn’t this a marketing class??

• Knowledge of economics and how economic decisions are made improves marketing decision making and results in increased customer satisfaction and higher profits for the company.
• Very important to have an understanding with global competition.
• An understanding of the types of competition that businesses face also contributes to better marketing decisions.

What is Economics?

• Unlimited wants and needs combined with limited resources results in scarcity.

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• Therefore, Economics studies how limited resources will be used to satisfy unlimited wants.
• Studied at the larger level – macro and mini societies - micro

Goods and services

• We all have wants – desires for things that we may or may nor actually acquire
• Wants usually change by age group
• Wants can be conflicting. The opportunity cost is the want that is not selected.
• Economic wants – desires for things that require money
• Noneconomic wants – wants that can be satisfied without money
• The things that people buy to satisfy their economic wants are called economic goods and services
• Consumers communicate their wants to producers as they purchase or fail to purchase goods and services. In this way consumers are casting dollar or economic votes. Note – Apple has sold over 100 million iPods; that’s over 100 million economic votes.

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Economic goods – characteristics

• Must be physical or tangible
• It must be useful (must be able to satisfy human wants)
• It must be scarce (that means that there is not enough of it so everyone can freely have as much as they want of it)
• Must be transferable or easily obtained

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• Note – consumer pay for some economic goods directly…. And other goods are paid for indirectly through taxes.

Economic Services

• Defined as productive acts that satisfy economic wants …. Must also be useful, scarce and transferable… BUT they are not tangible

Consumer and Industrial Goods (economic classification

Consumer

• All the goods and services that are purchased and actually used by the ultimate consumer. An ultimate consumer is anyone who personally uses a good or service to satisfy his/her own wants.

Industrial Goods

• All the goods and services that are purchased by producers. Producers –the people who make or provide goods and services for resale, to make other goods and services or for use in operating their businesses. Anything used by a business to carry out business activities.

Goods and services are derived from the factors of production

We must choose which wants to satisfy at any one time because our resources are limited. Factors of production are known as economic resources.

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Natural also called land– any resource found in nature and used to produce goods and services (air, land, minerals)

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Human also called labor – people are our human resources – valued for the work they produce

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Capital – all of the manufactured or constructed materials used in the production of goods and services ( buildings, equipment, machinery)

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Entrepreneurship – The business people that own the resources and capital.

Economic Systems

• An economic system is the organized way in which a country handles its economic decisions and solves its economic problems. In other words, it’s the way in which a country makes its earning and spending decisions
• No two nations have the same system, there are certain elements found in all economic systems: resources (natural, human, capital). Markets – the arrangements for the buying and selling of goods made up of both buyers and sellers. Participants - include, producers, consumers , and government. Medium of exchange – Something of value that can be used to obtain goods and services. Most common medium of exchange is money.

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• We need economic systems because our wants and unlimited but are recourses are not. People in all economic systems are interdependent

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Economic systems from around the globe

• Traditional – based on tradition, passed down through the generations. Participants usually follow the foot steps of their parents in choosing their jobs. Some traditional systems are called subsistence systems which barely supports life. Goal is to consume all that is produced and to satisfy basic needs for food and shelter.

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• Command – Government owns and operates many or all of the means of production and distribution. Consumers have little influence and there is little or no competition. Two primary types are communism and socialism.

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• Mixed – Government owns some basic means of production such as banks, energy, and communication, but there is private ownership as well. Capital for business investment comes from private and public business profits as well as from government bonds. Often called welfare states , high taxes are prevalent.
• Market - Private individuals and businesses own most of the property and resources. Marked by competition, choice and supply and demand.

Which Economic System Best Describes Our U.S. Economy?

• Market Economy - Private enterprise system.
• Resources of production are owned and controlled by individual producers.
• Producers use the profit motive in deciding what to produce.
• Individual consumers make decisions about what will be purchased to satisfy needs.
• Consumers use value in deciding what to consume.
• Government stays out of exchange activities unless it is clear that individuals or society are harmed by the decisions.
• Profit motive – encourages compeition and innovation

Three Key Players in Private Enterprise

• Consumers – Consumers select products that they believe are able to provide the greatest satisfaction for the price. Demand – The relationship between the quantity of a product consumers are willing and able to purchase and the price.

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• Producers – Businesses that use the resources they control to develop products and services are producers. Producers are always concerned with supply which is the relationship between the quantity of a product that producers are willing and able to provide and the price.

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• Government – Enacts laws and regulations when producers or consumers can be harmed.

More on supply and demand – key characteristic of market economy

• Supply (producer point of view)
• The quantity of a good or service that producers are willing to offer for sale at a specified price in a given time period.
• Market price and supply have a direct relationship.

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• Demand (consumer point of view)
• The quantity of a good or service that consumers are ready to buy at a given price at a particular time.
• Consumer Price and quantity demanded have an inverse relationship

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Supply and demand influences the market

Buyer’s market – best time for consumers to buy, high supply with low demand equals low prices.

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Seller’s market – best time for sellers to sell – low supply with high demand equals high prices

Enhancing Economic Utility

• Economic Utility is the amount of satisfaction a consumer receives from the consumption of a particular product or service. Utility means usefulness in economics.

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• Form utility – The physical product provided or the service offered.
• Task utility – the usefulness provided by a service.

• Time utility – This results from making the product or service available when the customer wants it.

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• Place utility – Making products or services available where the customer wants it.

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• Possession Utility – This results from the affordability of the product or service.

Elasticity

• An indication of how changes in price will affect changes in the amounts demanded and supplied

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• Elastic demand – changes in price correspond to a changes in demand

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• Inelastic demand – exists when the demand for a product or service is constant, even if the product’s price changes

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• Factors that determine elasticity – how essential is the good for human survival, availability of substitute products, how expensive is the item

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Questions

1. How do micro and macro economics differ?
2. Define economics. What does it study? Why should marketers be concerned with economic concepts?
3. Economic utility is another word for what?
4. Cite an example of a new or improved product or service you purchased recently. What improvement did it have compared to existing products or services, and what type of utility does that represent?
5. According to the definition of a market economy, was the government bailout justified? Why or why not?
6. If a beverage company decides to package its product in smaller plastic bottles, why type of utility would that represent?
7. In this economic system, one problem for consumers is very little choice.
8. A tribal community would be an example of what type of economic system?
9. What is the result of unlimited wants and needs combined with limited resources?
10. A bank at Walmart is an example of what type of activity?

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