A Review of Marketing
This presentation is the property of its rightful owner.
Sponsored Links
1 / 11

A Review of Marketing PowerPoint PPT Presentation


  • 73 Views
  • Uploaded on
  • Presentation posted in: General

A Review of Marketing. What is Marketing?. Marketing is much more than advertising and selling For individual organizations, marketing is as all decisions and activities involved in getting and keeping customers Comparative Advantage: The Basis for Exchange.

Download Presentation

A Review of Marketing

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


A review of marketing

A Review of Marketing


What is marketing

What is Marketing?

  • Marketing is much more than advertising and selling

  • For individual organizations, marketing is as all decisions and activities involved in getting and keeping customers

  • Comparative Advantage: The Basis for Exchange


Comparative advantage the basis for exchange

Comparative Advantage: The Basis for Exchange

  • Land of shirts and pants - David and Hugo

  • David spends all his day making pants - 6 pairs a day

  • David spends all his day making shirts - 6 pairs a day

  • Hugo spends all his day making pants - 6 pairs a day

  • Hugo spends all his day making shirts - 10 pairs a day


Comparative advantage the basis for exchange1

Comparative Advantage: The Basis for Exchange

  • Hugo has absolute advantage in shirt production (10/6)

  • Neither person has absolute advantage in pants production (6/6)

  • Comparative Advantage for pants

    • David - ratio of pants to shirts = (6/6) = 1.0

    • Hugo - ratio of pants to shirts = (6/10) = 0.6

      • David has relative, or comparative, advantage in pants production

  • Comparative Advantage for shirts

    • David -ratio of shirts to pants = (6/6) = 1.0

    • Hugo - ratio of shirts to pants = (10/6) = 1.6


Comparative advantage the basis for exchange2

Comparative Advantage: The Basis for Exchange

  • When Comparative Advantagesin production exist, total production will be higher if everyone specializes in their areas of comparative advantage.

  • E.g. If Hugo and David each spend half their time on pants and half on shirts, and can produce half the goods in half the time, they will produce:

    Shirts Pants

    David’s production33

    Hugo’s production53

    Total Production86


Comparative advantage the basis for exchange3

Comparative Advantage: The Basis for Exchange

  • If Hugo and David completely specialize in their area of comparative advantage, they will produce:

    Shirts Pants

    David’s production06

    Hugo’s production100

    Total Production(+2)106


Comparative advantage the basis for exchange4

Comparative Advantage: The Basis for Exchange

  • But Hugo has no pants!!

  • To realize higher production and still be fully clothed, they need to exchange shirts for pants.

  • The terms of trade must be mutually beneficial to motivate both David and Hugo to participate. E.g. if the exchange rate is set at 3 pairs of pants for 3 shirts

David starts with 6 pairs of pants

David trades 3 pairs of pants for 3 shirts

David finishes with 3 pairs of pants and 3 shirts

Hugo starts with 10 shirts

Hugo trades 3 shirt for 3 pairs of pants

Hugo finishes with 7 shirts and 3 pairs of pants

Why incur cost of trading?


Comparative advantage the basis for exchange5

Comparative Advantage: The Basis for Exchange

David starts with 6 pairs of pants

David trades 3 pairs of pants for 5 shirts

David finishes with 3 pairs of pants and 5 shirts

Hugo starts with 10 shirts

Hugo trades 5 shirts for 3 pairs of pants

Hugo finishes with 5 shirts and 3 pairs of pants

  • Change exchange rate to facilitate trade

    • Half the shirts are traded for half the pants - 5 shirts for 3 pairs of pants

Why incur cost of trading?

  • We can expect this market to move to an exchange rate somewhere around 4 shirts for 3 pairs of pants

  • That exchange rate will produce:

Hugo starts with 10 shirts

Hugo trades 4 shirts for 3 pairs of pants

Hugo finishes with 6 shirts and 3 pairs of pants

David starts with 6 pairs of pants

David trades 3 pairs of pants for 4 shirts

David finishes with 3 pairs of pants and 4 shirts

Both David and Hugo end up with one shirt more than they would have it they worked alone.


Principles of economics illustrated

Principles of Economics Illustrated

  • Comparative advantage in production motivates specialized production (to achieve higher total production).

  • Specialized production results in “discrepancies of assortment” which must be resolved through trade.

  • The exchange rate in trade must benefit all parties to motivate participation


Barriers to trade

Barriers to Trade

  • Comparative advantage lays a foundation for economic exchange but it does not guarantee trade (even if the proper exchange rate is set).

  • Hugo and David might refuse to trade for social, moral, or political reasons.

    • International Business - Tariffs, quotas, embargoes

  • Even if Hugo and David are willing to trade, the costs of trade may exceed the benefits. If the costs of trading exceed the value of two shirts, Hugo will not trade.


Sources of trading costs

Sources of Trading Costs

  • Trading costs stem from various “market making” activities that are needed to arrange and complete economic transactions.

    • Communication

    • Negotiation

    • Transportation

    • Storage


  • Login