UNIT C

THE BUSINESS OF FASHION

3.02 Explain the economics

of fashion.

Economics terminology

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 business
and the goods
used in the
production of other
goods.

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.

Supply & Demand

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

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.
When a product is in high demand,
people will pay higher prices.
When demand decreases, price will
decrease.

Scarcity: A condition in which more

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

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

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.

Goods: Items physically made by

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

Consumer goods

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.)

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

(cont.)

Shopping

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.
Industrial services: Acts performed
for businesses for a fee.

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 between two or more
businesses to gain as much of the
total market sales or customer
acceptance as possible.
Helps maintain reasonable prices
Provides consumers with new and
improved products
Provides wide selection of products

Competition

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
fashion products