11 Homogeneous Tax Rates
Lindon Robison
Learning goals. After completing this chapter, you should be able to: (1) construct effective tax rates on defending and challenging investments; (2) describe how effective tax rates depend on investment types; and (3) find effective tax rates on defending and challenging investments by calculating tax adjust coefficients.
Learning objectives. To achieve your learning goals, you should complete the following objectives:
- Learn how to compute a defender’s after-tax IRR by finding its tax adjustment coefficient.
- Learn how capital gains alter a defending investment’s tax adjustment coefficient.
- Learn how to compute the tax adjustment coefficient for a single period.
- Learn how to compare the average effective tax rate for an investment.
- Learn how to find the tax adjustment coefficient for loans and investments with increasing (decreasing) cash flow.
- Learn how taxes and tax adjustment coefficients influence investment rankings.
Introduction
According to Benjamin Franklin, taxes are one of the two constants in life (the other one is death). Taxes need to be included in present value (PV) models because only what the firm earns and keeps after paying taxes really matters. Therefore, proper construction of PV models requires that taxes be consistently applied to defending and challenging investments.
A single-equation PV model compares two investments: a challenger, described by time-dated cash flow, and a defender, usually described by its internal rate of return (IRR) of its time-dated cash flow. Homogeneous tax rates require that the same units are used when describing the cash flow of the challenger as the cash flow used when finding the IRR of the defender. And in particular, homogeneous tax rates require that when the cash flow of the challenger are adjusted for taxes, the IRR of the defender must also be adjusted for taxes. This chapter shows how to find homogeneous tax rates in PV models.
It is popular to adjust a defender’s before-tax IRR to an after-tax IRR by multiplying it by (1 – T), where T is the average tax rate applied to the investment. This chapter points out that this method for adjusting the defender’s IRR for taxes is only appropriate in a few special cases. Finally, this chapter shows how to find appropriate tax rates for adjusting the defender’s IRR for taxes in a variety of tax environments.
After-tax PV Models for Defenders and Challengers
The goal is to find a defender’s after-tax IRR. The first step is to find the defender’s before-tax IRR. Recall that the defender’s before-tax IRR is that rate of return such that the NPV of the defender’s before-tax net cash flow is zero. The defender’s after-tax IRR discounts the defender’s after-tax cash flow so that its NPV remains equal to zero.
There is an easy test to determine if taxes have been properly introduced into a PV model. First consider the defender’s cash flow stream and its IRR. Then introduce taxes into the defender’s cash flow stream and its IRR. If taxes have been properly introduced, then the NPV of the defender’s after-tax cash flow stream discounted by its after-tax IRR is still zero.
To illustrate, consider a defending investment that earns constant net cash flow of R dollars per period in perpetuity. The maximum bid (minimum sell) price V0 for this defending investment whose before-tax IRR is r. We describe this investment in equation (11.1).
(11.1)
where r = R/V0 is the before-tax IRR. Now suppose that we describe the defender’s cash flow and the IRR for this same investment on an after-tax basis. We do so by introducing the constant marginal income tax rate T into the model:
(11.2)
Income R and the before-tax IRR of the defender are both adjusted for taxes by multiplying by (1 – T). We can be sure that r(1 – T) is the after-tax IRR, since V0 is the same in the before and after-tax models. However, we need to be aware that only in the special case of constant infinite income can we multiply r by (1 – T) to obtain the after-tax IRR.
A General Approach for Finding the Defender’s After-tax IRR
A general approach for finding the defender’s after-tax IRR follows. Consider a defender that has a market-determined value of V0 and earns a before-tax cash flow stream of R1, R2, …, and whose defender’s before-tax IRR is r. A before-tax PV model for this defender can be written as:
(11.3)
Now we express the PV model for the defender one period later as:
(11.4)
Note that the bracketed expression in equation (11.3) equals the right-hand side of equation (11.4). This equality allows us to substitute V1 for the bracketed expression in equation (11.3). After making the substitution in equation (11.3) we solve for capital gains equal to:
(11.5)
Using the expression in equation (11.5) we can solve for the defender’s before-tax IRR equal to:
(11.6)
We now want to find the after-tax IRR for the defender described in equation (11.6). To do so, the IRR and the cash flow for the defender must be adjusted for taxes in such a way that V0 in equation (11.3) is not changed (and the defender’s NPV is still zero). The defender’s cash flow is adjusted for taxes by multiplying them by (1 – T). The defender’s before-tax IRR is adjusted for taxes by multiplying it by where , a tax adjustment coefficient, adjusts r to its after-tax equivalent such that V0 is the same whether calculated on a before-tax or after-tax basis. Besides these tax adjustments, let Tj equal other taxes applied to the defender’s cash flow that may include property taxes in the case of land, depreciation tax credits in the case of depreciable investments, and capital gains taxes when appropriate for assets earning capital gains. What all these taxes have in common is their functional dependence on the previous period’s asset value.
The after-tax PV model corresponding to equation (11.3) that leaves V0 unchanged can be written as:
(11.7)
Similarly, V1 can be expressed as:
(11.8)
Replacing the bracketed expression in equation (11.7) with V1, we find the after-tax IRR for the defender as:
(11.9)
Finally, substituting for r in equation (11.9) from the right-hand side of equation (11.6) and solving for , we obtain:
(11.10)
The value for in equation (11.10) adjusts the defender’s before-tax IRR to obtain homogeneity of measures between the defender’s after-tax IRR and the defender’s after-tax cash flow in equation (11.7). When homogeneity of measures is maintained, the defender’s NPV is still zero whether calculated on a before-tax or after-tax basis. We now find some specific after-tax IRRs for various types of defenders.
Case 11.1. and . In this case, the defender earns neither capital gains nor suffers capital losses, in which case Tj = 0 . This case is illustrated by an infinite constant cash flow series, described in equations 11.1 and 11.2. Because the cash flow is constant, capital gains are zero. Furthermore, the defender’s return in each period is equal to its cash receipts, which is fully taxed at income tax rate T. Therefore, the entire before-tax rate of return must be adjusted by (1 – T). In equation (11.10), substituting zero for capital gains and depreciation or capital gains tax results in:
(11.11)
Case 11.2. and . In this case the investment earns capital gains that are not taxed, which lowers the defender’s effective tax rate. Thus, and . The greater the capital gains, the lower the effective tax rate in period t. We illustrate this type of model next.
Consider a defending investment whose before-tax cash flow grows geometrically at rate g. Then before-tax cash flow in period t, Rt, equals: R0 (1 + g)t, and we write the investment’s IRR model as:
(11.12)
One period later, we can write:
(11.13)
and capital gains equal:
(11.14)
Then, substituting the right-hand side of equation (11.12) for V0 in equation (11.14), we obtain:
(11.15)
Now we are ready to find the tax-adjustment coefficient in this model. Substituting into equation (11.10) for capital gains and first period cash flow, we obtain:
(11.16)
Suppose that we naively introduced taxes into the growth model described in equation (11.12) and obtained:
(11.17)
In this case, an increase in T increases V0:
(11.18)
Since increasing T increases V0, we know that r(1 – T) cannot equal the after-tax IRR for the defending investment.
If, for example, r = 8%, g = 3%, then
(11.19)
Furthermore, for an investor in the 35% tax bracket whose cash flow is increasing at 3%, the effective tax rate would be .
Case 11.3. and . In this case the investment suffers capital losses for which no tax savings are allowed, which increases the defender’s effective tax rate. Thus, and . The greater the capital losses, the higher is the effective tax rate in period t. We illustrate this type of model next.
Consider a defending investment whose before-tax cash flow declines geometrically at rate d > 0. Then before-tax cash flow in period t, Rt, equals: , and we write the investment’s maximum bid price as:
(11.20)
One period later, we can write:
(11.21)
and capital losses equal:
(11.22)
Then, substituting the right-hand side of equation (11.20) for V0 in equation (11.22) we obtain:
(11.23)
Now we are ready to find the tax-adjustment coefficient in this model. Substituting into equation (11.10) for capital losses and first period cash flow, we obtain:
(11.24)
If for example, r = 8%, d = 3%, then,
(11.25)
Furthermore, for an investor in the 35% tax bracket, the effective tax rate on cash flow described by a geometric growth pattern would be The conclusion of Case 11.3 is that suffering losses on investments which are not used to shield income from taxes increases the investor’s effective tax rate.
Case 11.4. and In this model, the defending investment earns capital gains but pays property tax on its previous period’s value times the property tax rate Tp. However, property taxes are tax deductible, so we can write the after-tax IRR model for the defending land investment as:
(11.26)
We can sum the IRR model above by recognizing that it consists of two geometric sums. However, after summing, V0 appears on both sides of the equation. Therefore, we solve for V0 using equation (11.26) and obtain:
(11.27)
Capital gains and V0 in this model are the same as in Case 11.2, which allows us to write:
(11.28)
Consider the effect of property taxes compared to the geometric model without property taxes. In Case 11.2, we assumed that r = 8% and g = 3%, so that . We continue with the assumption that the decision maker is in the 35% tax bracket and add the assumption that the property tax rate is 2%. We now substitute into equation (11.28) and find:
(11.29)
Case 11.5. and A most fortuitous tax environment is an investment that appreciates but is considered to depreciate at rate d for tax purposes. In this case the investor is not required to pay taxes on the capital gains and is allowed a tax credit for depreciation that occurs only on the books. An example of such a model is the following:
(11.30)
Because the before-tax model is the geometric growth model, we can write:
(11.31)
To illustrate, suppose that d = 5%. Then, using numbers from our previous example, we substitute into equation (11.31) and find:
(11.32)
In other words, the tax rate for the investment is effectively zero.
Tax Adjustment Coefficients in Finite Models
So far we have obtained tax adjustment coefficient models for infinite time examples. As a result, the tax adjustment coefficients have been the same for each period. This approach has been convenient for exposition purposes. However, this result is not generally applicable. In practice, the tax adjustment coefficients vary by time period. We demonstrate using a finite time horizon model, a loan model in which the interest paid is tax deductible.
In many applications, the defender is a loan. When a loan is the defender, we immediately want to know if the interest paid is tax deductible. To keep our analysis simple, assume a constant-payment loan made for n periods at an interest rate of i percent. In which case, loan amount L0 at interest rate i with annuity payments A can be written as:
(11.33)
And the firm’s before-tax IRR is i. The loan balance after one period can be written as:
(11.34)
Furthermore, capital loss for loans can be expressed as:
(11.35)
The after-tax IRR model can be expressed as:
(11.36)
With equation (11.36) in a familiar form, we can write as:
(11.37)
In words, the effective after-tax IRR for a loan whose interest is tax-deductible is (1 – T).
Ranking Investments and Taxes
In this section, we acknowledge that the effective tax rates vary by the different types of investments being considered. Furthermore, if the effective tax rate for defenders and challengers differ, then before and after-tax investment rankings may be changed. To make this point, consider the following example. Assume the defender’s before-tax IRR is 8%, the income tax rate is 35%, the rate of growth in net cash flow is 3%, and the last year’s before-tax net cash flow was $100. The maximum bid price for this investment with geometric growing income is:
(11.38)
If the minimum sell price is $3,000, then the NPV for the investment is a negative $940 and the challenger is rejected.
Now suppose we introduce taxes into the model and recalculate the investment’s NPV. To simplify we assume an infinite life for the investment and assume for the defender and find:
(11.39)
Now the challenger’s NPV is positive. Introducing taxes into the NPV model has reversed the ranking: the challenger is now preferred to the defender. These results should alert financial managers to the importance of after-tax rankings.
Summary and Conclusions
Taxes are important when valuing and ranking investments because what really matters is the amount of your earnings you get to keep after paying taxes. It’s not the before-tax IRR that matters but the after-tax IRR that counts because that’s the rate you really earned on your defending investment.
In this chapter, we have introduced a method for finding a defender’s after-tax IRR. The method required that when a defender’s cash flow adjusted for taxes and was discounted by its after-tax IRR its change in NPV was zero. Then we used the equality to find the after-tax discount rate IRR. The implied tax rate in the after-tax IRR was compared to the firm’s average marginal income tax-rate.
While the usual practice is to multiply the defender’s before-tax IRR by (1 – T) to obtain the defender’s after-tax IRR, this chapter demonstrated that this cannot be generally relied on to obtain the defender’s properly adjusted after-tax IRR. Indeed, we demonstrated that capital gains that are not taxed can lower the effective tax rate. Capital losses that do not create tax shields can increase the effective tax rate. Property tax paid on land and other real property increases the effective tax rate paid. Allowing investors to write off an investment’s depreciation lowers the effective tax rate.
Finally, this chapter has employed simplifying assumptions, such as large values for n and average depreciation and growth rates, to find effective after-tax discount rates that have nice, closed-form solutions. Usually, this is not the case. It is often more difficult to find effective after-tax discount rates, and often these are not closed-form solutions.
Questions
- Describe the appropriate test for determining whether or not taxes have been properly introduced into the defender’s IRR.
- When finding after-tax IRRs for defenders, we solve for and claim that is the defender’s effective tax rate. Interpret the meaning of .
- Under what condition is the defender’s effective tax rate equal to its income tax rate T or that ?
- Assume that a defending investment’s price is V0, that d is the defender’s book value depreciation rate, that R is the constant stream of income earned by the defender, that T is the income tax rate, and that r is the defender’s before-tax IRR. Also assume that the defender is allowed to write off book value depreciation even though its income stream is constant. We write such a model as:
(Q11.1)
In this model, the depreciation is constant for 100/d periods beyond which the discounted cash flow is small enough to be ignored. The before-tax IRR model can be written as:
(Q11.2)
Solve for in the after-tax IRR model by substituting for V0 the right hand side of the second model R/r. Next, solve for a numerical value for assuming that d = 3% and r = 8%.
- Suppose that you have found the NPV for a challenger. What impact will an increase in the defender’s effective tax rate have on the challenger’s IRR? Please explain your answers.
- Calculate the effective tax rate for a depreciating challenger where d is the depreciation rate, T is the income tax rate, r is the defender’s before-tax IRR, and V0 is the price of defender. The IRR model is written below. (Hint: find by setting the right hand side of the equation below to the equivalent model without taxes (T = 0) and solve for .
(Q11.3)
- Discuss the following. Suppose that cash flow was constant (Rt = R0), yet tax laws allowed the owner of the durable to claim depreciation at rate d. Without solving for , can you deduce whether it would be equal to, less than, or greater than one? Defend your answer.
- Assume you are investing in land and that you borrow money to finance its purchase. Also assume that you pay property taxes on the land. In other words, land is the challenger and the loan is the defender. Which investment has the higher effective tax rate under three scenarios: g = 0, g > 0, and g < 0? What do you need to know about the property tax rate Tp to answer this question?
- In this chapter, five different investment tax scenarios were described. Please provide an example of each type of investment and how the tax scenario might change its rankings compared to before-tax rankings.


5.8 Tablet Dosage
Open Resources for Nursing (Open RN)
[latexpage]
When tablets are prescribed for a patient, the dosage of the tablets supplied is often different from the prescription, and nurses must calculate the number of tablets to administer. Dimensional analysis can be used to calculate the number of tablets to administer. Let’s practice using dimensional analysis using a practice problem.
Practice Problem: Tablet Dosage
Jane Doe recently had her prescription changed by her provider from Carvedilol 6.25 mg twice daily to Carvedilol 25 mg once daily. Jane shows you her prescription bottle (see Figure 5.7[1]) and asks, “How many pills can I take every day so I can use up what I have before purchasing another refill?” How many 6.25 mg tablets will you instruct Jane to take based on the new prescribed dose of Carvedilol 25 mg once daily?
Solve this question by using dimensional analysis.
1. Start by identifying the goal unit for which you are solving, which is a tablet (tab) in this scenario:
\[
{Tab}~=
\]
2. Set up the first fraction with tab in the numerator to match the goal unit. From the prescription bottle, we know that one of the supplied tablets has a concentration of 6.25 mg, so plug in 1 in the numerator and 6.25 mg in the denominator:
\[
{Tab}~=~\frac{1~tab}{6.25~mg}
\]
3. Set up the second fraction with the intent to cross out mg, so place mg in the numerator. By reviewing the prescription, we know the new dosage prescribed is 25 mg, so plug in 25 in the numerator, and 1 in the denominator to cross off units:
\[
{Tab}~=~\frac{1~tab}{6.25~mg}~x~\frac{25~mg}{1}
\]
4. Cross out mg diagonally:
\[
{Tab}~=~\frac{1~tab}{6.25~\cancel{mg}}~x~\frac{25~\cancel{mg}}
\]
5. Multiply across the numerators and denominators, and then divide the final fraction to solve the problem:
\[
{Tab}~=~\frac{1~tab}{6.25~\cancel{mg}}~x~\frac{25~\cancel{mg}}{1}~=~{4~tabs}
\]
Modules 1.5 – 1.7
Please practice tablet dosage calculations with the following interactive learning activity.
- “Carvedilol Rx Bottle Label Fig. 5.PNG" by Jody Myhre-Oechsle, Chippewa Valley Technical College, Open RN is licensed under CC BY 4.0 ↵
- Southwest Tech Math/Science Center. (2018, April 25). Entry-level drug calculations for nursing students part 1 – Pharmacology, nursing math*. [Video]. YouTube. All rights reserved. Video used with permission. https://youtu.be/HDmRmoi929U ↵
- Southwest Tech Math/Science Center. (2018, April 25). Entry-level drug calculations for nursing students part 5 – Pharmacology, nursing math*. [Video]. YouTube. All rights reserved. Video used with permission. https://youtu.be/taMmPMVDzC0 ↵
- Southwest Tech Math/Science Center. (2018, April 25). Entry-level drug calculations for nursing students part 6 – Pharmacology, nursing math*. [Video]. YouTube. All rights reserved. Video used with permission. https://youtu.be/vAY1xd2Y9kc ↵
- Southwest Tech Math/Science Center. (2018, April 25). Entry-level drug Calculations for nursing students part 7 – Pharmacology, nursing math*. [Video]. YouTube. All rights reserved. Video used with permission. https://youtu.be/XN1Die8jTE ↵


Water Balance
Objective 9
Describe the fluid compartments of the body and state the relative volumes for the intra- and extracellular compartments. Compare the sources for daily water gain and loss. Describe the mechanism to regulate daily water gain. Relate changes in intracellular and interstitial osmolarity to water movement.
Body Fluids
The fluids in the body account for about 60% of the overall body mass. This varies based on age, sex, and body size. Infants are leaner, so they have a little more fluid. The elderly typically have a lower percentage of total water. Differences in fat (hydrophobic) and muscle (hydrophilic) mass account for differences between sexes.
Two-thirds of the total fluid in the body is intracellular, the remaining one-third is extracellular. The extracellular environment can be divided into a number of compartments. The main extracellular space for fluid is the interstitial compartment. Essentially, this is fluid that is within tissue, but is bathing the cells. Other extracellular fluids are the plasma, urine, CSF, aqueous and vitreous humors, endolymph, perilymph, and the lymphatic, synovial, pleural, pericardial, and peritoneal fluids.
Fluid balance doesn’t mean that the same amount of fluid is in each compartment. It simply means that the fluids are present in the correct proportions. The body is constantly moving fluids by various mechanisms, but the compartmental volumes stay relatively constant.
Moving water between the intracellular and interstitial compartments is accomplished by osmosis, so the solute concentrations become very important. Most of these solutes are electrolytes.
Water Loss & Gain
Most of the water gained by the body on a daily basis (2500 ml) comes from ingestion. People consume foods containing water and other miscellaneous liquids throughout the day. A small volume of water is gained through ATP synthesis and is called metabolic water.
The body loses about 2500 ml of water per day from the kidneys, skin, lungs and GI tract. To maintain normal fluid proportions, the water gained should be equal the water lost.
The body’s thirst center is located in the hypothalamus. Dehydration is a condition that occurs when water loss exceeds water gain. This results in a decrease in blood pressure and an increase in blood osmolarity (concentration). The hypothalamus detects the increase in blood osmolarity and triggers the thirst response. Other receptors for dehydration include the kidneys, baroreceptors in the arteries, and neurons in the mouth that detect dryness.
Changes in water quantity and availability throughout the body have a dramatic effect on cells. Remember learning about tonicity and how the solute environment around a cell can cause it to shrink or swell? To avoid this, the body carefully regulates water volume and solute concentration, using the kidneys to excrete excess water and solutes. When blood volume gets too low, the body must pull water from wherever it can to maintain adequate blood pressure to vital organs. Clinically, we can give a patient fluid if they need it, but what is infused into the patient is typically isotonic saline or something similar to it, like lactated Ringer’s solution. The composition of these solutions varies, but their purpose is to add to the volume while maintaining the balance of solutes.
Media Attributions
- U19-036 Fluid Compartments © Betts, J. Gordon; Young, Kelly A.; Wise, James A.; Johnson, Eddie; Poe, Brandon; Kruse, Dean H. Korol, Oksana; Johnson, Jody E.; Womble, Mark & DeSaix, Peter is licensed under a CC BY (Attribution) license
- U19-037 Distribution of Body Water © Calabrese, Allison is licensed under a CC BY (Attribution) license
- U19-038 Regulation of Water Balance © University of Hawai‘i at Mānoa Food Science and Human Nutrition Program is licensed under a CC BY-NC-SA (Attribution NonCommercial ShareAlike) license
- U19-039 Table of Daily Water Gains and Losses © Price, Travis is licensed under a CC BY-SA (Attribution ShareAlike) license
- U19-040 Flowchart of Thirst Response © Betts, J. Gordon; Young, Kelly A.; Wise, James A.; Johnson, Eddie; Poe, Brandon; Kruse, Dean H. Korol, Oksana; Johnson, Jody E.; Womble, Mark & DeSaix, Peter is licensed under a CC BY (Attribution) license


Heating
19 Thermocouples
Click play on the following audio player to listen along as you read this section.
A thermocouple is constructed from two dissimilar metals that utilize thermoelectric generation to create a small voltage when heated. When one junction is subjected to presence of heat at the pilot light flame, a small DC current flows through the cold junction of the thermocouple, which is connected to the pilot safety shut-off gas valve circuit.
If the pilot flame is extinguished, the voltage source disappears and the normally closed, held-open valve re-closes, thus preventing gas from filling the space.
This small value of voltage, usually around 25 – 30 DC millivolts, provides the power to hold the pilot light valve open during normal operation. The types of metals used in the construction of the thermocouple depend upon the values of temperature they are to be subjected to.
If a higher value of voltage is required, a thermopile, which is manufactured from several series-aiding connected thermocouples, can provide voltages of typically 250 DC millivolts or 750 DC millivolts. Certain stand-alone gas fired furnaces and fire-places will utilize a thermopile to provide control circuit power to a low-voltage thermostat installed in the room.
A device made of two dissimilar metals, which produce a DC voltage of approximately 25 – 30 millivolts when one end is subjected to heat.
Several thermocouples connected together to provide a higher value of DC voltage. Typically either 250 or 750 DC millivolts.
When multiple voltage sources are connected so that their potential differences add together, providing a higher voltage than any one individual device


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3. Introduction: Review of Basic Grammar
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183 Letter from Yael Ram
My name is Yael, and I work and live in Israel. When Sara and Antonia asked me to contribute a letter for future tourism researchers, I reflected on my career and thought about a metaphor for describing it. A “game board” was the metaphor that came to my mind almost immediately – a combination of ladders and snakes, of successes and failures, of jumping ahead and falling backward.
Next, I opened my PowerPoint and drew my non-linear career path, which I’m still walking on. My academic career “game board” is attached here; my three conclusions from the process of drawing and reflecting are summarized below.
Not all snakes (delays in the career) are bad! There are two kinds of “snakes.” The first type is linked to a good decision in bad timing. It is the case of family matters and also choosing unpopular research decisions. At first sight, this type of snake can be considered bad, but it is not true! Sometimes the issue worth it, but the timing is bad. It happened to me with the sexual harassment studies. It took several years for this snake to become a ladder when the (academic) world was ready and the MeToo movement aroused. The same is relevant to family and kids, which required lots of effort initially, and later on, they become a source of inspiration and even talented IT and social media specialists! I’m grateful to my partner Eyal and my kids – Niv, Yoav and Yuval.
The second type of snake is bad choices in bad timing. This snake will be remained a snake, no matter what. This was the case of the family vacation study, which did not have an impact, and even I lose interest. Unfortunately, you cannot tell in advance which snake will become a ladder and which snake will remain a snake. Hence, my recommendation is not to focus on one subject and develop several (but not too many!) options and research directions. You can never know which snake will become a ladder at the end, except the family issue; this is a safe bet.
Good colleagues are more important than degrees. A Ph.D. degree is less important than finding an academic “home base.” It doesn’t matter where or with whom you did your Ph.D., but it matters a lot who are your friends and colleagues in the academic world. Each of these co-authors contributed a step or a ladder: C. Michael Hall, Ayala Malach-Pines (RiP), Paul Peeters, Jeroen Nawijn, Peter Bjork, Adi Weidenfeld, Melanie Smith, John Tribe, Avital Biran, Amit Kama, and Noga Collins-Kreiner. Without this great group of people, my board game was full of snakes. Thanks to them, there are more ladders than snakes. I am grateful and hope that my name is written on their imaginary game boards, too. Yes, some people that I met on my path were snakes. I moved on. They are not part of my board game anymore.
Ladders are no substitute for hard work; ladders are the output of hard work. Looking at the board game, it seems like the ladders made life easier. It is a wrong impression; the truth is that hard work builds strong ladders. Ladders made of pure luck will fall sooner or later. But if the ladder is based on good colleagues, true friends, various research directions, family, teaching excellence, and even experience in administration and organizational politics, you will climb on safely.
Good luck on your path!
Yael Ram
Ashkelon Academic College, Hebrew University of Jerusalem, Israel


Learning Objectives
By the end of this section, you will be able to:
- Contrast traditional economies, command economies, and market economies
- Explain gross domestic product (GDP)
- Assess the importance and effects of globalization
Think about what a complex system a modern economy is. It includes all production of goods and services, all buying and selling, all employment. The economic life of every individual is interrelated, at least to a small extent, with the economic lives of thousands or even millions of other individuals. Who organizes and coordinates this system? Who insures that, for example, the number of televisions a society provides is the same as the amount it needs and wants? Who insures that the right number of employees work in the electronics industry? Who insures that televisions are produced in the best way possible? How does it all get done?
There are at least three ways societies have found to organize an economy. The first is the traditional economy, which is the oldest economic system and can be found in parts of Asia, Africa, and South America. Traditional economies organize their economic affairs the way they have always done (i.e., tradition). Occupations stay in the family. Most families are farmers who grow the crops they have always grown using traditional methods. What you produce is what you get to consume. Because things are driven by tradition, there is little economic progress or development.
Command economies are very different. In a command economy, economic effort is devoted to goals passed down from a ruler or ruling class. Ancient Egypt was a good example: a large part of economic life was devoted to building pyramids, like those shown in Figure 1, for the pharaohs. Medieval manor life is another example: the lord provided the land for growing crops and protection in the event of war. In return, vassals provided labor and soldiers to do the lord’s bidding. In the last century, communism emphasized command economies.
In a command economy, the government decides what goods and services will be produced and what prices will be charged for them. The government decides what methods of production will be used and how much workers will be paid. Many necessities like healthcare and education are provided for free. Currently, Cuba and North Korea have command economies.
Although command economies have a very centralized structure for economic decisions, market economies have a very decentralized structure. A market is an institution that brings together buyers and sellers of goods or services, who may be either individuals or businesses. The New York Stock Exchange, shown in Figure 2, is a prime example of market in which buyers and sellers are brought together. In a market economy, decision-making is decentralized. Market economies are based on private enterprise: the means of production (resources and businesses) are owned and operated by private individuals or groups of private individuals. Businesses supply goods and services based on demand. (In a command economy, by contrast, resources and businesses are owned by the government.) What goods and services are supplied depends on what is demanded. A person’s income is based on his or her ability to convert resources (especially labor) into something that society values. The more society values the person’s output, the higher the income (think Lady Gaga or LeBron James). In this scenario, economic decisions are determined by market forces, not governments.
Most economies in the real world are mixed; they combine elements of command and market (and even traditional) systems. The U.S. economy is positioned toward the market-oriented end of the spectrum. Many countries in Europe and Latin America, while primarily market-oriented, have a greater degree of government involvement in economic decisions than does the U.S. economy. China and Russia, while they are closer to having a market-oriented system now than several decades ago, remain closer to the command economy end of the spectrum. A rich resource of information about countries and their economies can be found on the Heritage Foundation’s website, as the following Clear It Up feature discusses.
What countries are considered economically free?
Who is in control of economic decisions? Are people free to do what they want and to work where they want? Are businesses free to produce when they want and what they choose, and to hire and fire as they wish? Are banks free to choose who will receive loans? Or does the government control these kinds of choices? Each year, researchers at the Heritage Foundation and the Wall Street Journal look at 50 different categories of economic freedom for countries around the world. They give each nation a score based on the extent of economic freedom in each category.
The 2015 Heritage Foundation’s Index of Economic Freedom report ranked 178 countries around the world: some examples of the most free and the least free countries are listed in Table 1. Several countries were not ranked because of extreme instability that made judgments about economic freedom impossible. These countries include Afghanistan, Iraq, Syria, and Somalia.
The assigned rankings are inevitably based on estimates, yet even these rough measures can be useful for discerning trends. In 2015, 101 of the 178 included countries shifted toward greater economic freedom, although 77 of the countries shifted toward less economic freedom. In recent decades, the overall trend has been a higher level of economic freedom around the world.
| Most Economic Freedom | Least Economic Freedom |
|---|---|
| 1. Hong Kong | 167. Timor-Leste |
| 2. Singapore | 168. Democratic Republic of Congo |
| 3. New Zealand | 169. Argentina |
| 4. Australia | 170. Republic of Congo |
| 5. Switzerland | 171. Iran |
| 6. Canada | 172. Turkmenistan |
| 7. Chile | 173. Equatorial Guinea |
| 8. Estonia | 174. Eritrea |
| 9. Ireland | 175. Zimbabwe |
| 10. Mauritius | 176. Venezuela |
| 11. Denmark | 177. Cuba |
| 12. United States | 178. North Korea |
| Table 1. Economic Freedoms, 2015 (Source: The Heritage Foundation, 2015 Index of Economic Freedom, Country Rankings, http://www.heritage.org/index/ranking) |
Regulations: The Rules of the Game
Markets and government regulations are always entangled. There is no such thing as an absolutely free market. Regulations always define the “rules of the game” in the economy. Economies that are primarily market-oriented have fewer regulations—ideally just enough to maintain an even playing field for participants. At a minimum, these laws govern matters like safeguarding private property against theft, protecting people from violence, enforcing legal contracts, preventing fraud, and collecting taxes. Conversely, even the most command-oriented economies operate using markets. How else would buying and selling occur? But the decisions of what will be produced and what prices will be charged are heavily regulated. Heavily regulated economies often have underground economies, which are markets where the buyers and sellers make transactions without the government’s approval.
The question of how to organize economic institutions is typically not a black-or-white choice between all market or all government, but instead involves a balancing act over the appropriate combination of market freedom and government rules.
The Rise of Globalization
Recent decades have seen a trend toward globalization, which is the expanding cultural, political, and economic connections between people around the world. One measure of this is the increased buying and selling of goods, services, and assets across national borders—in other words, international trade and financial capital flows.
Globalization has occurred for a number of reasons. Improvements in shipping, as illustrated by the container ship shown in Figure 3, and air cargo have driven down transportation costs. Innovations in computing and telecommunications have made it easier and cheaper to manage long-distance economic connections of production and sales. Many valuable products and services in the modern economy can take the form of information—for example: computer software; financial advice; travel planning; music, books and movies; and blueprints for designing a building. These products and many others can be transported over telephones and computer networks at ever-lower costs. Finally, international agreements and treaties between countries have encouraged greater trade.
Table 2 presents one measure of globalization. It shows the percentage of domestic economic production that was exported for a selection of countries from 2010 to 2013, according to an entity known as The World Bank. Exports are the goods and services that are produced domestically and sold abroad. Imports are the goods and services that are produced abroad and then sold domestically. The size of total production in an economy is measured by the gross domestic product (GDP). Thus, the ratio of exports divided by GDP measures what share of a country’s total economic production is sold in other countries.
| Country | 2010 | 2011 | 2012 | 2013 | |
|---|---|---|---|---|---|
| Higher Income Countries | |||||
| United States | 12.4 | 13.6 | 13.6 | 13.5 | |
| Belgium | 76.2 | 81.4 | 82.2 | 82.8 | |
| Canada | 29.1 | 30.7 | 30.0 | 30.1 | |
| France | 26.0 | 27.8 | 28.1 | 28.3 | |
| Middle Income Countries | |||||
| Brazil | 10.9 | 11.9 | 12.6 | 12.6 | |
| Mexico | 29.9 | 31.2 | 32.6 | 31.7 | |
| South Korea | 49.4 | 55.7 | 56.3 | 53.9 | |
| Lower Income Countries | |||||
| Chad | 36.8 | 38.9 | 36.9 | 32.2 | |
| China | 29.4 | 28.5 | 27.3 | 26.4 | |
| India | 22.0 | 23.9 | 24.0 | 24.8 | |
| Nigeria | 25.3 | 31.3 | 31.4 | 18.0 | |
| Table 2. The Extent of Globalization (exports/GDP) (Source: http://databank.worldbank.org/data/) |
In recent decades, the export/GDP ratio has generally risen, both worldwide and for the U.S. economy. Interestingly, the share of U.S. exports in proportion to the U.S. economy is well below the global average, in part because large economies like the United States can contain more of the division of labor inside their national borders. However, smaller economies like Belgium, Korea, and Canada need to trade across their borders with other countries to take full advantage of division of labor, specialization, and economies of scale. In this sense, the enormous U.S. economy is less affected by globalization than most other countries.
Table 2 also shows that many medium and low income countries around the world, like Mexico and China, have also experienced a surge of globalization in recent decades. If an astronaut in orbit could put on special glasses that make all economic transactions visible as brightly colored lines and look down at Earth, the astronaut would see the planet covered with connections.
So, hopefully, you now have an idea of what economics is about. Before you move to any other chapter of study, be sure to read the very important appendix to this chapter called The Use of Mathematics in Principles of Economics. It is essential that you learn more about how to read and use models in economics.
Decisions … Decisions in the Social Media Age
The world we live in today provides nearly instant access to a wealth of information. Consider that as recently as the late 1970s, the Farmer’s Almanac, along with the Weather Bureau of the U.S. Department of Agriculture, were the primary sources American farmers used to determine when to plant and harvest their crops. Today, farmers are more likely to access, online, weather forecasts from the National Oceanic and Atmospheric Administration or watch the Weather Channel. After all, knowing the upcoming forecast could drive when to harvest crops. Consequently, knowing the upcoming weather could change the amount of crop harvested.
Some relatively new information forums, such as Facebook, are rapidly changing how information is distributed; hence, influencing decision making. In 2014, the Pew Research Center reported that 71% of online adults use Facebook. Facebook post topics range from the National Basketball Association, to celebrity singers and performers, to farmers.
Information helps us make decisions. Decisions as simple as what to wear today to how many reporters should be sent to cover a crash. Each of these decisions is an economic decision. After all, resources are scarce. If ten reporters are sent to cover an accident, they are not available to cover other stories or complete other tasks. Information provides the knowledge needed to make the best possible decisions on how to utilize scarce resources. Welcome to the world of economics!
Key Concepts and Summary
Societies can be organized as traditional, command, or market-oriented economies. Most societies are a mix. The last few decades have seen globalization evolve as a result of growth in commercial and financial networks that cross national borders, making businesses and workers from different economies increasingly interdependent.
Self-Check Questions
- The chapter defines private enterprise as a characteristic of market-oriented economies. What would public enterprise be? Hint: It is a characteristic of command economies.
- Why might Belgium, France, Italy, and Sweden have a higher export to GDP ratio than the United States?
Review Questions
- What are the three ways that societies can organize themselves economically?
- What is globalization? How do you think it might have affected the economy over the past decade?
Critical Thinking Questions
- Why do you think that most modern countries’ economies are a mix of command and market types?
- Can you think of ways that globalization has helped you economically? Can you think of ways that it has not?
References
The Heritage Foundation. 2015. “2015 Index of Economic Freedom.” Accessed March 11, 2015. http://www.heritage.org/index/ranking.
Garling, Caleb. “S.F. plane crash: Reporting, emotions on social media,” The San Francisco Chronicle. July 7, 2013. http://www.sfgate.com/news/article/S-F-plane-crash-Reporting-emotions-on-social-4651639.php.
Irvine, Jessica. “Social Networking Sites are Factories of Modern Ideas.” The Sydney Morning Herald. November 25, 2011.http://www.smh.com.au/federal-politics/society-and-culture/social-networking-sites-are-factories-of-modern-ideas-20111124-1nwy3.html#ixzz2YZhPYeME.
Pew Research Center. 2015. “Social Networking Fact Sheet.” Accessed March 11, 2015. http://www.pewinternet.org/fact-sheets/social-networking-fact-sheet/.
The World Bank Group. 2015. “World Data Bank.” Accessed March 30, 2014. http://databank.worldbank.org/data/.
Glossary
- command economy
- an economy where economic decisions are passed down from government authority and where resources are owned by the government
- exports
- products (goods and services) made domestically and sold abroad
- globalization
- the trend in which buying and selling in markets have increasingly crossed national borders
- gross domestic product (GDP)
- measure of the size of total production in an economy
- imports
- products (goods and services) made abroad and then sold domestically
- market
- interaction between potential buyers and sellers; a combination of demand and supply
- market economy
- an economy where economic decisions are decentralized, resources are owned by private individuals, and businesses supply goods and services based on demand
- private enterprise
- system where the means of production (resources and businesses) are owned and operated by private individuals or groups of private individuals
- traditional economy
- typically an agricultural economy where things are done the same as they have always been done
- underground economy
- a market where the buyers and sellers make transactions in violation of one or more government regulations
Solutions
Answers to Self-Check Questions
- Public enterprise means the factors of production (resources and businesses) are owned and operated by the government.
- The United States is a large country economically speaking, so it has less need to trade internationally than the other countries mentioned. (This is the same reason that France and Italy have lower ratios than Belgium or Sweden.) One additional reason is that each of the other countries is a member of the European Union, where trade between members occurs without barriers to trade, like tariffs and quotas.


124 Assignment: Analysis of a Demand/Supply Shock using the AD-AS Model
Imagine that in the year 2022, China’s economy slows significantly, causing a decrease in demand for US exports.
Use the AD/AS model to explain the likely short run impacts on U.S. GDP and the aggregate price level. What do you anticipate will happen to U.S. consumption expenditure and U.S. employment? Please explain your reasoning for each of your predictions and show graphically as appropriate.
Rubric
| Criteria | Not Evident | Developing | Proficient | Distinguished | Weight |
| Explain the likely short run impacts on U.S. GDP using the AD/AS model | 4
|
||||
| Explain the likely aggregate price level use the AD/AS model | 4 | ||||
| Create a graphic to illustrate the anticipated result to U.S. consumption expenditure and U.S. employment | 5 | ||||
| Explain the anticipated result to U.S. consumption expenditure and U.S. employment | 5 | ||||
| Articulation of response (citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas.) | 2 | ||||
| Total: 20 |


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33 Geography & Earth Sciences
Physical Geology
This textbook was written by an earth sciences professor at Thompson Rivers University in British Columbia, Canada. This was done in collaboration with academics from various post-secondary institutions across BC and the rest of Canada. It has been successfully adopted.
Includes: Applications, chapter summaries, exercises, and solutions.
May suit: EARTHSC 1G03 and ISCI 1A24.
Earth Science
This text includes introductions to concepts from level I earth science courses, from geology to water systems. It was developed through Lumen Learning and a professor of Geology and Earth Sciences from Santa Ana College.
Includes: Exercises, and summaries.
May suit: EARTHSC 1G03, ENVIRSC 1C03 and ISCI 1A24.
Open Geography
This website is a resource dedicated to providing high-quality and free online geography resources.
Includes: Several textbooks, mapping assignments, and a collection of online resources.
May suit: EARTHSC 1G03/2GG3, ENVIRSC 1C03, ISCI 1A24, and ENVSOCTY 1HA3/1HB3.
Geosciences LibreTexts Library
A collection of open textbooks, assignments, and other educational resources on the subject of geosciences.
Includes: Lab experiments, case studies, interactive applications, and worksheets.
Digging into Canadian Soils
Written entirely by members of the Canadian Society of Soil Science, Digging into Canadian Soils: An Introduction to Soil Science provides an introduction to the core disciplines of soil science, and introduces the concepts and vocabulary needed by students just beginning their soil science journey. The textbook is intended to introduce students to the Canadian System of Soil Classification by providing examples from across the length and breadth of the world’s second largest country, and to the Canadian Society of Soil Science, whose members share a common passion for soil science and are keen to share and instill this passion with students across Canada.
Includes: Thought exercises, study questions, and summaries.
May suit: ENVIRSC 2B03.
Introduction to Climate Science
This book describes how Earth’s climate is changing, how it has been changing in the recent geological past and how it may change in the future. It covers the physical sciences that build the foundations of our current understanding of global climate change such as radiation, Earth’s energy balance, the greenhouse effect and the carbon cycle. Both natural and human causes for climate change are discussed. Impacts of climate change on natural and human systems are summarized. Ethical and economical aspects of human-caused climate change and solutions are presented.
Includes: Interactive exercises, end-of-chapter questions, and recorded lectures.
May suit: ENVIRSC 1C03/3C03/3B03 and EARTHSC 3CC3.
Physical Geology (2nd Edition)
Physical Geology is a comprehensive introductory text on the physical aspects of geology, including rocks and minerals, plate tectonics, earthquakes, volcanoes, glaciation, groundwater, streams, coasts, mass wasting, climate change, planetary geology and much more. It has a strong emphasis on examples from western Canada, especially British Columbia, and also includes a chapter devoted to the geological history of western Canada. The book is a collaboration of faculty from Earth Science departments at Universities and Colleges across British Columbia and elsewhere.
Includes: Exercises, summaries, questions for review, labs, and earthquake magnitude calculator.
May suit: EARTHSC 1G03/2GG3/2T03.
Environmental Biology
Environmental Biology enables students to develop a nuanced understanding of today’s most pressing environmental issues. This text helps students grasp the scientific foundation of these issues so that they can better understand the world around them and their impact upon it. This open textbook covers the most salient environmental issues, from a biological perspective. Topics include the fundamentals of ecology, biodiversity, pollution, climate change, food production, and human population growth.
Includes: Summaries, and review questions.
May suit: EARTHSC 3CC3.
The Physical Environment
This textbook explores the principles of the physical environment using an interactive platform to focus on geography.
Includes: Videos, summaries, review questions, and self-assessment quizzes.
May suit: EARTHSC 1G03.
Environmental Issues
This open textbook covers the most salient environmental issues, from both biological and social science perspectives. The text is designed for introductory-level university environmental science, environmental issues, or environmental politics courses. Topics include the fundamentals of ecology, biodiversity, pollution, climate change, food production, sustainable energy and human population growth as well as environmental justice and environmental communication.
Includes: Summaries, end-of-chapter review questions, case studies, videos, and QR codes to external resources.
May suit: ENVIRSC 1C03 and ENVSOCTY 2EI3.
Physical Geography and Natural Disasters
The intent of this textbook is to update and build upon the body of knowledge that exists within the geographic discipline.
Includes: Videos.
May suit: EARTHSC 1G03/2GG3.
Physical Geography Lab Manual: The Atmosphere and Biosphere
This lab manual is intended as an experiential learning companion to introductory university textbooks covering the subject area known as physical geography. It contains exercises dealing with the atmosphere and biosphere. The laboratory exercises in this manual have been designed to engage students with activities that promote analytical problem-solving, critical thinking, and active learning through the analysis and interpretation of data. Many questions access data from actual scientific sources on the internet, enhancing the hands-on laboratory experience for students. The exercises have been carefully designed to augment important theoretical topics usually found in the curriculum of a first-year university course in physical geography.
Includes: Videos, laboratory questions, excel data files, question answer sheets, and external resources.
May suit: EARTHSCI 1G03.


189 Letter from Ángeles Rubio Gil
Dear future women tourism researchers,
The tourism research has helped me achieve my main dreams as a woman, sociologist, teacher, writer, journalist, it is now up to me to give back as much as I have received to the tourism sector and the people, especially my teachers, who taught me to wander through life in a relationship of trust that is the basis of research and education. To continue with this reciprocal commitment, together with future researchers, I count on your help.
First of all, I must recommend not paying attention to the voices that underestimate the tourism sector or that consider their study to be of little academic interest. From both sociology and economics, interpretations have sometimes been produced that include them in the field of personal services and as a non-productive sector, when the opposite is true. Its multi-disciplinarity, the pioneering nature of its information systems (Big Data, OTAS, CRS, Revenue management, etc.) and its multiplier factor have an impact on all other sectors and therefore, on wealth and employment.
At the origin of the travel and hospitality industry is also that of intercultural communication among peoples, of trade and finance that gave rise to development on a global scale. In addition, tourist professions, similar to the fact of being born a woman, have ways of seeing and being in the world that humanity needs. An activity with tasks that may seem less prestigious, it has a more bearable, breathable, welcoming and meaningful life in its hands. It is a necessity in today’s world, which also promises to help reconcile leisure and the regenerative development of the planet.
Finally, tourism has ceased to be just a transit sector, if not a ‘cushion’ against temporary or structural unemployment in other economic sectors. The new forms of tourism and the exponential growth of tourism studies have contributed to increasingly specialised, technological and scientific careers, thereby giving rise to business niches and new, highly recognised and stimulating professions that make it possible to reconcile family with social life and contact with nature.
About my proposal as a university professor of tourism marketing, for success in a global world and permanent change, it has to do with a greater connection of professional goals with the circular time of women, wherein the needs of each stage of life and care for the environment are respected. It is a circular dynamic that implies adaptation to change and periodic regeneration, also sensitivity to express one’s own expectations but first to understand those of others:
- Think about what your purpose is, the one that reconciles what you need with what the world needs and that your proposal is clear, concise and confers value.
- Have independence of criteria but work as a team or network; do not be alone.
- Take advice and reference from the best teachers and their jobs, professional performance, ethics and emotional intelligence to face relationships and challenges.
- Research is a way of thinking and living in a way that is consistent with reality, in the face of any adversity: Investigate!
- Excellence is in your mind. Think carefully because we are what we think, say and work. Prioritise quality over quantity because success calls for success.
- Do not let emotions cloud your mind. Located ego gives as much importance to success as it does to failure (from which one learns without raising suspicion).
- Register your intellectual property but recognise the work of your predecessors. The one who knows the most is the one who reads and learns the most and best from others. Ideas are in the air.
- Project your lifestyle where vocation and conciliation make your work a moment of pleasure every day, and success will come alone and many times.
- Your capital is attention. Take advantage of time with attention to what you do, do not start a project before finishing another.
- Do not wait for inspiration. Work during the hours when you have more energy. The social sciences are not works of fiction but a matter of method.
- In research, it is easier to do well doing what needs to be done at each stage of the research rather than doing it quickly and poorly.
- If you have a good idea, do it but with discretion and diplomacy. Intelligence offends.
- ‘Love your neighbour as yourself’ not before yourself! Abnegation is NOT healthy, love (also for work) must be so.
And these are the 13 ideas that I hope, like the 13 months of women with their 13 moons to sow projects, in the logic of nature, continue to yield us much fruit and bring us good luck. We are our way!
Ángeles Rubio-Gil
NONNOBIS-URJC Social Research (Universidad Rey Juan Carlos), Spain


48 Reading: Evaluating Marketing Results
No marketing program is planned and implemented perfectly. Marketing managers will tell you that they experience many surprises during the course of their activities. In an effort to ensure that performance goes according to plans, marketing managers establish controls that help them evaluate results and identify needed modifications. Surprises occur, but marketing managers who have established sound control procedures can react to unexpected results quickly and effectively.
Marketing control involves a number of decisions—one is simply deciding which function to monitor. Some organizations monitor their entire marketing program, while others choose to monitor only a part of it, such as their sales force or their advertising program. A second set of decisions concerns the establishment of performance standards—for example, market share, profitability, or sales. A third set of decisions concerns how to collect information for making comparisons between actual performance and standards. Finally, to the extent that discrepancies exist between actual and planned performance, adjustments in the marketing program or the strategic plan must be made.
Once a plan is put into action, a marketing manager must still gather information on the effectiveness of the plan’s implementation. Information on sales, profits, consumer reactions, and competitor reactions must be collected and analyzed so that a marketing manager can identify new problems and opportunities.
Return on the Marketing Investment
Increasingly, the single most important evaluation measure is the return on the marketing investment (or marketing ROI). Earlier in this module, we learned that strategies define how an organization can best use its resources to achieve the mission. Measuring return on the marketing investment helps marketers understand whether their use of resources is yielding the most effective results.
Let’s look at an example of marketing ROI.
Example: Marketing ROI
A retail store launches a campaign to increase online sales. The firm tracks the cost of setting up the online campaign, promotion costs, costs of the images and designs for the promotion, and staff time used to implement the campaign. These are the investments. Let’s say the total marketing spending on the campaign is $10,000.
Next, the store tracks a range of metrics, including how many people view online promotions (page views), how many people click on promotions (click-throughs), and ultimately the number of resulting sales. Thanks to the campaign, the company sees an additional $100,000 in sales.
The marketing ROI can be calculated by taking the revenue generated ($100,000) and dividing it by the cost of the marketing budget invested ($10,000). In this case, the marketing ROI for the retail store’s online campaign is 10.
Marketing ROI does not only focus on sales generated. Marketers may talk about spending per new customer acquired, increases in the lifetime value of the customer, increases in market share, or other metrics that are important to the strategy.
Why has marketing ROI become an important metric? Many marketing leaders have realized that they are better able to secure appropriate marketing budgets when they can point to tangible results. Managers who found themselves constantly responding to the question “What do we get from our marketing budget?” have learned that marketing ROI can provide a definitive answer.
In addition to the marketing ROI, there are many new technology-based marketing programs and tools that give marketers an enhanced ability to capture data and evaluate results in quantitative terms.
Example: Old Spice
The video below provides an excellent example of the evaluation of a marketing campaign:
You can view the transcript for “The Ad Campaign That Saved Old Spice – Cheddar Examines”. (opens in new window)
Think about the following questions regarding the ad campaign in the video you just watched:
- What were the goals of the campaign?
- How did the target customer influence the campaign and the goals?
- Was it successful?
- What metrics were used to determine the success of the campaign?


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8 The Deadly Poppy Field
Our little party of travelers awakened the next morning refreshed and full of hope, and Dorothy breakfasted like a princess off peaches and plums from the trees beside the river. Behind them was the dark forest they had passed safely through, although they had suffered many discouragements; but before them was a lovely, sunny country that seemed to beckon them on to the Emerald City. To be sure, the broad river now cut them off from this beautiful land. But the raft was nearly done, and after the Tin Woodman had cut a few more logs and fastened them together with wooden pins, they were ready to start. Dorothy sat down in the middle of the raft and held Toto in her arms. When the Cowardly Lion stepped upon the raft it tipped badly, for he was big and heavy; but the Scarecrow and the Tin Woodman stood upon the other end to steady it, and they had long poles in their hands to push the raft through the water. They got along quite well at first, but when they reached the middle of the river the swift current swept the raft downstream, farther and farther away from the road of yellow brick. And the water grew so deep that the long poles would not touch the bottom. “This is bad,” said the Tin Woodman, “for if we cannot get to the land we shall be carried into the country of the Wicked Witch of the West, and she will enchant us and make us her slaves.” “And then I should get no brains,” said the Scarecrow. “And I should get no courage,” said the Cowardly Lion. “And I should get no heart,” said the Tin Woodman. “And I should never get back to Kansas,” said Dorothy. “We must certainly get to the Emerald City if we can,” the Scarecrow continued, and he pushed so hard on his long pole that it stuck fast in the mud at the bottom of the river. Then, before he could pull it out again–or let go–the raft was swept away, and the poor Scarecrow was left clinging to the pole in the middle of the river. “Good-bye!” he called after them, and they were very sorry to leave him. Indeed, the Tin Woodman began to cry, but fortunately remembered that he might rust, and so dried his tears on Dorothy’s apron. Of course this was a bad thing for the Scarecrow. “I am now worse off than when I first met Dorothy,” he thought. “Then, I was stuck on a pole in a cornfield, where I could make-believe scare the crows, at any rate. But surely there is no use for a Scarecrow stuck on a pole in the middle of a river. I am afraid I shall never have any brains, after all!” Down the stream the raft floated, and the poor Scarecrow was left far behind. Then the Lion said: “Something must be done to save us. I think I can swim to the shore and pull the raft after me, if you will only hold fast to the tip of my tail.” So he sprang into the water, and the Tin Woodman caught fast hold of his tail. Then the Lion began to swim with all his might toward the shore. It was hard work, although he was so big; but by and by they were drawn out of the current, and then Dorothy took the Tin Woodman’s long pole and helped push the raft to the land. They were all tired out when they reached the shore at last and stepped off upon the pretty green grass, and they also knew that the stream had carried them a long way past the road of yellow brick that led to the Emerald City. “What shall we do now?” asked the Tin Woodman, as the Lion lay down on the grass to let the sun dry him. “We must get back to the road, in some way,” said Dorothy. “The best plan will be to walk along the riverbank until we come to the road again,” remarked the Lion. So, when they were rested, Dorothy picked up her basket and they started along the grassy bank, to the road from which the river had carried them. It was a lovely country, with plenty of flowers and fruit trees and sunshine to cheer them, and had they not felt so sorry for the poor Scarecrow, they could have been very happy. They walked along as fast as they could, Dorothy only stopping once to pick a beautiful flower; and after a time the Tin Woodman cried out: “Look!” Then they all looked at the river and saw the Scarecrow perched upon his pole in the middle of the water, looking very lonely and sad. “What can we do to save him?” asked Dorothy. The Lion and the Woodman both shook their heads, for they did not know. So they sat down upon the bank and gazed wistfully at the Scarecrow until a Stork flew by, who, upon seeing them, stopped to rest at the water’s edge. “Who are you and where are you going?” asked the Stork. “I am Dorothy,” answered the girl, “and these are my friends, the Tin Woodman and the Cowardly Lion; and we are going to the Emerald City.” “This isn’t the road,” said the Stork, as she twisted her long neck and looked sharply at the queer party. “I know it,” returned Dorothy, “but we have lost the Scarecrow, and are wondering how we shall get him again.” “Where is he?” asked the Stork. “Over there in the river,” answered the little girl. “If he wasn’t so big and heavy I would get him for you,” remarked the Stork. “He isn’t heavy a bit,” said Dorothy eagerly, “for he is stuffed with straw; and if you will bring him back to us, we shall thank you ever and ever so much.” “Well, I’ll try,” said the Stork, “but if I find he is too heavy to carry I shall have to drop him in the river again.” So the big bird flew into the air and over the water till she came to where the Scarecrow was perched upon his pole. Then the Stork with her great claws grabbed the Scarecrow by the arm and carried him up into the air and back to the bank, where Dorothy and the Lion and the Tin Woodman and Toto were sitting. When the Scarecrow found himself among his friends again, he was so happy that he hugged them all, even the Lion and Toto; and as they walked along he sang “Tol-de-ri-de-oh!” at every step, he felt so gay. “I was afraid I should have to stay in the river forever,” he said, “but the kind Stork saved me, and if I ever get any brains I shall find the Stork again and do her some kindness in return.” “That’s all right,” said the Stork, who was flying along beside them. “I always like to help anyone in trouble. But I must go now, for my babies are waiting in the nest for me. I hope you will find the Emerald City and that Oz will help you.” “Thank you,” replied Dorothy, and then the kind Stork flew into the air and was soon out of sight. They walked along listening to the singing of the brightly colored birds and looking at the lovely flowers which now became so thick that the ground was carpeted with them. There were big yellow and white and blue and purple blossoms, besides great clusters of scarlet poppies, which were so brilliant in color they almost dazzled Dorothy’s eyes. “Aren’t they beautiful?” the girl asked, as she breathed in the spicy scent of the bright flowers. “I suppose so,” answered the Scarecrow. “When I have brains, I shall probably like them better.” “If I only had a heart, I should love them,” added the Tin Woodman. “I always did like flowers,” said the Lion. “They seem so helpless and frail. But there are none in the forest so bright as these.” They now came upon more and more of the big scarlet poppies, and fewer and fewer of the other flowers; and soon they found themselves in the midst of a great meadow of poppies. Now it is well known that when there are many of these flowers together their odor is so powerful that anyone who breathes it falls asleep, and if the sleeper is not carried away from the scent of the flowers, he sleeps on and on forever. But Dorothy did not know this, nor could she get away from the bright red flowers that were everywhere about; so presently her eyes grew heavy and she felt she must sit down to rest and to sleep. But the Tin Woodman would not let her do this. “We must hurry and get back to the road of yellow brick before dark,” he said; and the Scarecrow agreed with him. So they kept walking until Dorothy could stand no longer. Her eyes closed in spite of herself and she forgot where she was and fell among the poppies, fast asleep. “What shall we do?” asked the Tin Woodman. “If we leave her here she will die,” said the Lion.   It was true; Toto had fallen down beside his little mistress. But the Scarecrow and the Tin Woodman, not being made of flesh, were not troubled by the scent of the flowers. “Run fast,” said the Scarecrow to the Lion, “and get out of this deadly flower bed as soon as you can.  So the Lion aroused himself and bounded forward as fast as he could go. In a moment he was out of sight. “Let us make a chair with our hands and carry her,” said the Scarecrow. So they picked up Toto and put the dog in Dorothy’s lap, and then they made a chair with their hands for the seat and their arms for the arms and carried the sleeping girl between them through the flowers. On and on they walked, and it seemed that the great carpet of deadly flowers that surrounded them would never end. They followed the bend of the river, and at last came upon their friend the Lion, lying fast asleep among the poppies. The flowers had been too strong for the huge beast and he had given up at last, and fallen only a short distance from the end of the poppy bed, where the sweet grass spread in beautiful green fields before them. “We can do nothing for him,” said the Tin Woodman, sadly; “for he is much too heavy to lift. We must leave him here to sleep on forever, and perhaps he will dream that he has found courage at last.” “I’m sorry,” said the Scarecrow. “The Lion was a very good comrade for one so cowardly. But let us go on.” They carried the sleeping girl to a pretty spot beside the river, far enough from the poppy field to prevent her breathing any more of the poison of the flowers, and here they laid her gently on the soft grass and waited for the fresh breeze to waken her.


9 Becoming a Provider, Advocate, and Leader
Complete the corresponding TEACH[1] chapter and TEACH CME Post Test at the end of the chapter to self-evaluate your learning. Then, review the supplementary content including readings, videos, and resources provided.
required Supplementary Resources
Sex & Gender 101: The First Steps to Creating Trans Inclusive Care. (n.d.). Innovating Education in Reproductive Health. Retrieved June 11, 2024, from https://www.innovating-education.org/course/gender-inclusive-care/
- Goodman S, Flaxman G, and the TEACH Trainers Collaborative Working Group. (2022). TEACH Early Abortion Training Workbook, Seventh Edition. UCSF Bixby Center for Global Reproductive Health. https://pressbooks.pub/workbook/ ↵


References
Amabile, T. (1985). Motivation and creativity: Effects of motivational orientation on creative writers. Journal of Personality and Social Psychology, 48(2), 393–399.
Freedman, N. D., Park, Y., Abnet, C. C., Hollenbeck, A. R., & Sinha, R. (2012). Association of coffee drinking with total and cause-specific mortality. New England Journal of Medicine, 366, 1891–1904.
Hamlin, J. K., Wynn, K., & Bloom, P. (2007). Social evaluation by preverbal infants. Nature, 452 (22), 557–560.
Ramsey, F., & Schafer, D. (2002). The statistical sleuth: A course in methods of data analysis. Belmont, CA: Duxbury.
Short, T., Moriarty, H., & Cooley, M. E. (1995). Readability of educational materials for patients with cancer. Journal of Statistics Education, 3(2).
Stanovich, K. (2013). How to think straight about psychology (10th ed.). Upper Saddle River, NJ: Pearson.


Applying psychological principles In Our Lives
Pretend Play and Emotional Control in Young Children
Dr. Thalia R. Goldstein[2], a developmental psychologist at George Mason University, studied how participation in drama classes impacted the development of emotional regulation in five-year-old children. Young children have diffuse interests, meaning they are interested in many different things. Because everything is a learning opportunity when they are young, five-year-olds were the perfect age group to introduce this theater intervention.
The Research Design
Goldstein wanted to examine how dramatic play might have a unique impact compared to other types of play with similar elements – in other words, are drama games beneficial in different ways than other play activities?
Goldstein hypothesized that it was the embodiment aspect of theatre and dramatic play that would cause changes for children. What does “embodying emotion” looks like? Goldstein gives the ‘right foot’ example: “Shift your right foot as if you were the most important and most powerful person in this room. How does your right foot feel different? Now I want you to imagine your right foot as if your favorite person in the whole world is about to walk through the door. What would your right food be doing right now?” That is an example of making an abstract emotion physical, or embodying it using your foot.
Because Goldstein and her fellow researchers wanted to be able to make a causal claim, she used a randomized controlled field intervention. The children were randomly assigned to one of three conditions, for eight weeks:
- Drama Games – games included acting out narratives with embodied emotions and characters with guidance around emotional embodiment.
- Block Play – guided block building, embodied action, no narrative, characters, or emotions.
- Story Time – stories that included characters and emotions, no emotional guidance or embodiment.
| Drama Games | Block Play | Story Time | |
| Group Interaction | Groups of 4, interacting | Groups of 4, interacting | Groups of 4, listening |
| Guidance | Guidance through games and emotions | Guidance for building and placing blocks | Guided reading with questions during books |
| Narrative/Character | Narrative and characters in games | No narrative or character | Narrative and characters in books |
| Emotions | Emotions in some games | No discussion of emotions | Emotions in some books |
| Embodiment | Embodied emotions and characters | Embodied actions in building | No embodiment |
Each of these conditions was designed to analyze different aspects of theatre education. All three conditions included groups of four children interacting with each other along with some form of guidance for the activity, but the drama games condition was the only one with emotional guidance. The Story Time condition included discussion of emotion, but no emotional embodiment and no physical action. The Block Play group included embodiment of action but no emotion or narrative. Comparison of the three groups can allow the researcher to come to stronger conclusions about the impact of drama games compared to simply observing a theater class.
The data collection phase of the study was double-blind, which means the researchers who observe and collect data are unaware of which kids were in what condition, or the point of the study overall. This helps minimize any experimenter bias. The data collection occurred before and after the eight week intervention and consisted of three parts:
- A Theory of Mind test
- A task where children had to give stickers away
- A task where the experimenter would ‘accidentally’ hurt themselves or drop something to see how the child would react. Would they cry? Or freeze?
Each of these tasks were designed to measure the extent to which children are prosocial and understanding of others. Goldstein also looked at how children understood their own emotions through several tasks. This included showing puppets that have different emotional responses and then asking the children which puppet was “most like” them.
The Research Results
Goldstein and her colleagues found no effect of the drama games condition on children’s engagement or understanding, but it did affect their emotional control. The children who were in the dramatic play group showed significantly less personal distress in a task than they did before the intervention started and compared to the children who were in the block play or story time groups. This was true for both their observed behavioral distress levels (such as crying or looking distressed) and the children’s self-report of their distress levels[4].
What do do these results tell us? What are the larger takeaways or theories we can draw from this experiment? Goldstein uses the analogy of a toolbox. She concludes that participating in theatre and playing drama games can add to an emotional toolbox for children learning to manage emotions. Each dramatic game or exercise may require a different tool or use a different toolbox; however they all are tools for emotion. Each tools theatre provides can be considered a strategy or skill for emotional regulation or emotional understanding that kids can then use outside of the theatre game. The more children can learn about emotions, the more they can regulate them and understand them in others. Theatre games just help children gain those tools that they can then take with them in their toolbox into the real world.
Link to Learning: If you would like to see Dr. Goldstein sharing her research with an Introductory Psychology class, watch this 24-minute video. She shares more information on this fascinating area of study.
Questions for thought and discussion:
- How does using a randomized control trial help researchers know their claim is supported?
- Why is it be important for children to develop strategies for emotional regulation?
- What made the drama classes unique compared to the other conditions of block play and story time?
- What are some future questions you might want to examine about theatre education, emotional regulation, or emotional understanding?
- Goldstein, T. R., & Lerner, M. D. (2018). Dramatic pretend play games uniquely improve emotional control in young children. Developmental science, 21(4), e12603. ↵
- Psychology | Faculty and Staff: Thalia R Goldstein.” Psychology, psychology.gmu.edu/people/tgoldste. ↵
- Goldstein, T. R. (2018). Developing a Dramatic Pretend Play Game Intervention. American Journal of Play, 10(3), 290-308. ↵
- Goldstein, T. R., & Lerner, M. D. (2018). Dramatic pretend play games uniquely improve emotional control in young children. Developmental science, 21(4), e12603. ↵