UNIT C THE BUSINESS OF FASHION 3 02

UNIT C THE BUSINESS OF FASHION 3. 02 Explain the economics of fashion.

Economics terminology n n n Economics: A study of how to meet the unlimited wants of a society with its limited resources. Goods: Items physically made by manufacturers; tangible products. Services: Acts performed for the consumer; intangible products. Consumers: People who use products. Customers: People who buy products.

Economic resources Land, labor, and capital resources that can be used to produce the goods and services that people consume; also known as the factors of production. • Natural resources • Capital • Human resources • Entrepreneurship

Natural resources Everything contained in the earth or found in the sea.

Human resources All the people who work in the economy.

Capital The money needed to start and operate a busines

Entrepreneurship The skills of people who are willing to take the risk of starting their own business; entrepreneurs organize the other economic resources in order to create goods and services needed and desired in an economy.

YOU DECIDE For each of the following items, decide whether it is a Land resource, Human resource, Capital resource, or if it represents Entrepreneurship. _______1. Road _______2. Salesperson _______3. Boutique owner _______4. Coal _______5. Cotton field _______6. Atlantic Ocean _______7. Computer _______8. Weaving machine _______9. Cash register _______10. Fashion journalist _______11. Independent jewelry designer _______12. Screen printing machine _______13. Truck _______14. Assistant manager _______15. Oil

YOU DECIDE For each of the following items, decide whether it is a Land resource, Human resource, Capital resource, or if it represents Entrepreneurship. Capital _______1. Road Human _______2. Salesperson _______3. Boutique owner Entrepreneur Land _______4. Coal Land _______5. Cotton field Land _______6. Atlantic Ocean Capital _______7. Computer _______8. Weaving machine Capital _______9. Cash register Human _______10. Fashion journalist Entrepreneur _______11. Independent jewelry designer Capital _______12. Screen printing machine Capital _______13. Truck Human _______14. Assistant manager Land _______15. Oil

Supply & Demand n n Supply: The amount of goods producers are willing to produce and sell at a given price. Demand: The amount of goods consumers are willing and able to buy at a given price. – Elasticity: The degree to which changes in price affect the demand for a product. – Elastic demand: Changes in the price of the product result in changes in demand for that product. – Inelastic demand: Changes in the price of the product have very little effect on the demand for that product.

The law of supply and demand The economic principle which states that the supply of a good or service will increase when demand is great and decrease when demand is low.

The interaction of supply & demand… n n n People will pay more for goods in short supply. Companies that produce and sell an item in limited supply can charge a higher price for the goods and, in turn, make more profit. However, other companies may begin to produce the product, increasing supply and causing the price to decrease. When products are readily available, prices are lower, resulting in lower profits.

The interaction of supply & demand… (cont. ) When supply of a product is high, many producers stop making the product and begin producing products that have less supply, increasing the chance of profit. n When a product is in high demand, people will pay higher prices. n When demand decreases, price will decrease. n

Scarcity: A condition in which more goods and services are desired than are available. n Opportunity cost: The value of what is given up when an economic choice is made. n Utility: Usefulness of a good or service in satisfying wants and needs. n

*Please write these theories in your notes Theories of Supply & Demand LAW OF SUPPLY LAW OF DEMAND $ $ = Quantity Supplied *Your warm-up in on the stool in the front of the class. 7 question Vo. Cats. You can write on the sheet. = Quantity Demanded LAW OF SUPPLY & DEMAND Quantity Demanded = $ Quantity Supplied + Demanded

ELASTICITY Indicate whether demand for the following products would be considered Elastic (E) or Inelastic (I). ______ ______ ______ 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Diamond ring Contact lens solution Armani suit Pantyhose Shampoo Manicure Calvin Klein jeans Toothpaste Dooney & Bourke handbag Health spa membership Eyeglasses

ELASTICITY Indicate whether demand for the following products would be considered Elastic (E) or Inelastic (I). __E____ __I____ __E____ __I____ __E___ __I___ 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Diamond ring Contact lens solution Armani suit Pantyhose Shampoo Manicure Calvin Klein jeans Toothpaste Dooney & Bourke handbag Health spa membership Eyeglasses

Economic utilities Form utility n Place utility n Time utility n Possession utility n Information utility n

n n n Form utility: Usefulness provided by changing raw materials or assembling parts to create a useful good. Place utility: Usefulness provided by having a product available where customers need it. Time utility: Usefulness provided by having a product available when it is needed. Possession utility: Usefulness provided by creating opportunities for the consumer to own the product. Information utility: Usefulness provided by communicating information about products.

NAME THAT UTILITY For each of the following, identify the type of utility created. (Form, place, time, possession, or information) ______ ______ ______ ______ 1. Selling bathing suits at a beach resort 2. Using cotton to make fabric 3. Charging a dress on a credit card 4. Communicating information to a customer on the care of a new leather coat 5. Having prom dresses in the stores during the spring months 6. Altering the length of a new pair of slacks 7. Selling ski wear at a ski resort 8. Allowing mothers to utilize lay away for children’s school clothes 9. Selling jewelry cleaner in a jewelry store 10. Keeping stores open later on the weekends 11. Explaining to a customer the many ways to wear their new scarf 12. Making holiday sweaters available during the month of December 13. Providing payment plans for expensive jewelry purchases 14. Sizing a new ring 15. Selling DECA blazers at the national conference

NAME THAT UTILITY For each of the following, identify the type of utility created. (Form, place, time, possession, or information) PL 1. Selling bathing suits at a beach resort F 2. Using cotton to make fabric PO 3. Charging a dress on a credit card I 4. Communicating information to a customer on the care of a new leather coat T 5. Having prom dresses in the stores during the spring months F 6. Altering the length of a new pair of slacks PL 7. Selling ski wear at a ski resort PO 8. Allowing mothers to utilize lay away for children’s school clothes PL 9. Selling jewelry cleaner in a jewelry store T 10. Keeping stores open later on the weekends I 11. Explaining to a customer the many ways to wear their new scarf T 12. Making holiday sweaters available during the month of December PO 13. Providing payment plans for expensive jewelry purchases F 14. Sizing a new ring PL 15. Selling DECA blazers at the national conference

Goods: Items physically made by manufacturers; tangible products. Consumer goods: Products useful to consumers. n Industrial goods: Products used by businesses in producing goods and services. n

Consumer goods n Convenience goods: Emergency items, impulse items, or staple goods usually purchased in small quantities at frequent intervals with a minimum of comparison shopping.

Consumer goods (cont. ) n. Specialty goods: Goods for which the consumer has a preference due to quality, uniqueness, brand identification, or other specific characteristics. Price is rarely a deciding factor in the purchase decision, and the consumer is unlikely to accept substitutes.

Consumer goods n. Shopping (cont. ) goods: Merchandise purchased by the consumer only after comparison shopping. These are often expensive items and comparison or price and quality is important.

Services: Acts performed for the consumer; intangible products. Consumer services: Acts performed for the consumer for a fee. n Industrial services: Acts performed for businesses for a fee. n

GOODS OR SERVICES? Identify the following as either Consumer Goods (CG), Industrial Goods (IG), Consumer Services (CS), Industrial Services (IS), Convenience Goods (Con. G), Specialty Goods (SG), or Shopping Good (Sp. G). More than one identification may apply. 1. Commercial sewing machine 2. Suit alteration 3. Mascara 4. Commercial clothes steamer 5. Tommy Hilfiger jacket 6. Vogue 7. Cash register repair 8. Contact lens solution 9. Pantyhose 10. Haircut 11. Color analysis 12. Versace gown 13. Nail polish 14. 14 k gold watch 15. Computerized inventory system 16. Jewelry display case 17. Commercial carpet cleaning 18. Calvin Klein eyeglasses 19. Louis Vuitton luggage 20. Manicure

Free-market system An economic system in which individuals, not the government, make important economic decisions. • Consumers decide how to spend their money. • Consumer choices determine which products are offered for sale. • Sellers may charge any price they desire.

Profit The money left over after costs, expenses, and taxes have been deducted from sales. • The driving force behind the free-market system • Determines whether or not a business will succeed

Competition A rivalry • Helps maintain reasonable prices to gain between two or more businesses • Provides consumers with new and improved products • Provides wide selection of products

Competition n n n Pure competition Oligopoly Monopoly Direct competition Indirect competition Price competition Nonprice competition

Pure competition A market situation in which no single company in an industry is large or powerful enough to influence or control prices. • Many buyers and sellers • No single buyer or seller controls prices or number of units sold. • All products sold are very similar to each other. • Companies may enter or exit the industry without pressure or restraints; the industry is insignificantly affected when a company enters or exits.

Oligopoly A market structure in which a few large, competitive firms dominate the market. • Firms react to the actions of their competitors. • Laws prevent oligopolies from price setting among themselves. • Government may prevent mergers that would reduce competition. • Difficult for new firms to enter the industry or for established firms to leave the industry

Monopoly A market in which there are no direct competitors; only one company offers goods or services for sale and has total control over products and prices. • U. S. has no textile/apparel monopolies. • The government does allow some utilities to operate as monopolies in industries where it would be inefficient to have more than one firm.

Direct competition Competition between two or more retailers that utilize the same type of business format.

Indirect competition Competition between two or more retailers that employ different types of business formats to sell the same type of goods.

Price competition Competition focused on the selling price of a product. *Consumers prefer to buy the products that are lowest in price.

Nonprice competition Competition based on factors that are not related to price. • Quality • Customer services • Business location • Business reputation • Qualified salespeople

Business cycle The fluctuations in the economy over periods of several years. • Prosperity • Recession • Depression • Recovery

Prosperity • Highest period of economic growth • Low unemployment • High output of goods and services • High consumer spending • Consumers willing to spend on fashion products

Recession • Fewer goods and services being produced • Worker layoffs • Period of economic slowdown • Retail sales decrease • Rising unemployment • Necessary products such as food, housing, and transportation take priority over fashion products. • Decrease in consumer spending

Depression • Prolonged recession • Extremely low consumer spending • High unemployment • Drastic decrease in production of products • Poverty can result. • Fashion products are not being purchased.

Recovery • Renewed economic growth and an increase in output of goods and services • Reduced unemployment • Increased consumer spending • Moderate business expansion • Gradual increase in sale of products fashion