This document discusses several key topics related to economics and the fashion industry. It begins by explaining the economics of the fashion industry, including the processes of production, distribution, and consumption of clothing. It then discusses how the industry is competitive at all stages. The document then provides 5 facts about the global fashion industry, including details on its large revenue, reliance on exports for some countries, lack of gender diversity in leadership, environmental impact, and Fashion Revolution Day. It concludes by discussing how economics studies how societies allocate scarce resources.

1. Shweta Iyer
Tarun Pandey

3.  The Fashion Industry is going through
some difficult times – and – focusing on
what impacts the business of Fashion has
never been more critical to success.
 As much as we all love the glamorous
side of Fashion – when all the glamour is
stripped away – you still have a business
to run – and business has to run
profitably.

5.  The economics of clothing involve three processes:
production, making the clothing; distribution, getting the
clothing from the maker to the consumer; and consumption,
actually using the clothing.
 Although consumption drives production and distribution, the
three processes are in many ways inseparable.
 The system is fiercely competitive at all stages, partly but not
entirely because clothing is a fashion good.
 Although some plain utilitarian garments may seem to be
little affected by fashion, their production and distribution are
highly competitive as well.

6.  In developed nations, fashions in clothing
and other goods and services change so
rapidly and in so many ways that it's
difficult to keep track.
 People may assume that, in ancient
cultures or isolated societies, styles of
clothing, dwellings, tools, and customs
remained static for generations.

7. 5 things you didn’t
know about fashion
industry

8. 1.The fashion industry generates up to $2.5
trillion in revenue a year
 That’s more than other major sectors, including the
auto, fast-food and video-game industries.
2.Clothing accounts for 88% of Haiti’s exports
 And Haiti is not alone in relying on the clothing
industry for exports: 79% of Bangladesh’s, 59% of
Lesotho’s, 52% of Cambodia’s and 43% of Sri
Lanka’s exports are related to the clothing industry.
 Even for those places that don’t rely so heavily on
the industry for exports, fashion is still deeply
embedded in their culture, and fashion weeks have
emerged around the world in new “fashion
capitals” such as Lagos, Mumbai and Sao Paulo.

9. 3.Only 25% of board members of publicly-traded
fashion companies are women
 Fashion is a female-dominated industry – women
make up 68% of the workforce, with that figure going
as high as 90% in places such as Bangladesh. On top
of that, they also account for 85% of the customer
base for fashion companies.
 But while the shop floor is one story, the boardroom
is another. Only seven of the 50 major fashion
brands are run by women.
 And only a quarter of board members of publicly-
traded fashion and luxury companies are women.
While this is higher than the 10% of women who
serve as board members of publicly-traded companies
in the US, this number is still abysmally low for an
industry so highly dependent on women.

10.  The average American throws away 70 pounds of
clothes a year
 The fashion industry relies on an abundant amount of land
to graze animals, water to grow cotton, and natural
resources to transport the latest clothes, shoes and
accessories around the world each season. For instance, it
takes 1,083 gallons of water to produce one cotton T-shirt!
 According to the World Economic Forum’s Engaging
Tomorrow’s Consumer project, which has been trying to
mainstream sustainable lifestyles, millennial consumers are
increasingly looking for products that make them look and
feel good, and are good for the planet and society.

11. Our love of new styles
and silhouettes doesn’t
help, as a
disproportionally large
amount of clothing ends
up in landfills each year.
In the US, where each
person throws away a
shocking 70 pounds of
clothing each year,
textiles account for 5%
of municipal waste.

12. 5. 24 April is Fashion Revolution Day
 In today’s global production environment, many
companies maintain supply chains with a vast
network of sub-contractors. As a result of this
enormous network of suppliers, customers (and even
some companies) have little understanding of where
their products come from.
 It was in response to this – and to mark the two-year
anniversary of the Rana Plaza factory collapse, where
over 1,000 garment workers were killed – that
aFashion Revolution Day was established.

13. Using the hashtag
WhoMadeMyClothes, it
calls for a renewed
customer focus on supply
chain transparency and
the millions of people
who are a part of the
industry’s enormously
complex value chain.

14.  Scarcity – a basic human dilemma
 Limited resources vs. unlimited wants
 The human condition requires making choices

 Definitions of Economics
 Mankiw’s definition
 …is the study of how society manages its scarce resources
 Hedrick’s definition
 …is how society chooses to allocate its scarce resources
among competing demands to improve human welfare
 Alternative definitions
 … what economists do.
 … is the study of choice.

16.  Fundamental Questions of Economics -
Scarcity requires all societies to answer
the following questions:
 What is to be produced?
 How is to be produced?
 For whom will it be produced
WHFM Questions

17.  Economics as a Science
 The scientific method
 Observation→Theory→Data→Testing
 Rational Behavior
 Weighing benefits and costs and maximizing total net
benefits
 Marginal vs. Total Thinking
 Economic Theory and Models
 Simplification by assumption
 Ceteris Paribus – Holding other factors constant
 Prediction vs. realism
 Microeconomic versus Macroeconomics

18.  Bias towards use of natural rather than
controlled experiments
 The specialized language of economics (e.g.
“He has lots of money.”)
 Money – medium of exchange
 Wealth – accumulated financial and non-
financial assets
 Income – the purchasing power earned during
a given period

19.  Scientists versus policy makers
 Positive Economics
 Descriptive - what the world is like.
 Objective- value judgments need not be made
 Positive statements can theoretically be tested by
appealing to the facts
 Normative Economics
 Prescriptive - what the world ought to be like
 Subjective – value judgments must be made
 Normative statements cannot be tested appealing to
facts.

20.  How do people make decisions?
 How do people interact?
 How does the economy work overall?

21.  Principle #1 - People face tradeoffs
 Time allocation – an example of tradeoffs
 Efficiency versus equity
 Production Possibilities Frontier

22.  Principle #2 - The cost of something is
what you have to give up to get it
 Opportunity costs come from Von Weiser, a
German economist late 1800s
 Opportunity costs are independent of
monetary units
 TINSTAAFL
 The real costs of going to college

23.  Principle #3 - Rational people think at
the margin
 Rational or irrational decision-making
 Marginal benefits and costs versus total
benefits and costs
 Weighing marginal costs and benefits leads to
maximizing net benefits (total welfare)
 The boxes example

24.  Principle #4 –People respond to
incentives
 Reactions to changes in marginal benefits and
costs
 Increases (decreases) in marginal benefits
mean more (less) of an activity
 Increases (decreases) in marginal costs mean
less (more) of an activity
 Example of seat belts leading to increased
speeds
 Example of SUV (with child car seat) in
Issaquah

25.  Principle #5 - Trade can make everybody
better off
 Adam Smith author of the “An Inquiry into the
Causes and Consequences of the Wealth of
Nations” 1776
 Gains from the division of labor and
specialization
 Mercantilists perspectives
 Example of why Ellensburg

26.  Principle #6 - Markets are usually a good
way of organizing economic activity
 feudal times where feudal states were self-
supporting, also haciendas in the new world
 the benefits of trade are so powerful that people
began to trade
 markets for economists are more abstract than
the notion of a middle eastern bazaar or a flea
market and simply determine the prices and
quantities traded of different goods and services
 the “failure” of centrally planned economies and
the movement towards markets for the WHFM
questions

27.  Principles 1-5 combine with markets to turn the
pursuit of self-interest into promoting the
interests of society
 Adam Smith and the “invisible hand”
 creativity and productivity are stimulated by
the pursuit of self-interest into improving
resource allocations
 “set it and forget it” becomes “compete or be
obsolete”
 in some cases markets fail to allocate resources
effectively so,

28.  Principle #7 Governments can sometimes
improve interaction that occurs in markets
 there are circumstances when market signals fail
to allocate resources efficiently or equitably
 Public Goods, Externalities and Income
Distribution
 Some goods or services that people desire will not
be produced by markets (e.g. lighthouses).
 Some goods or services will either be under
produced (vaccines) or overproduced (pollution)
because markets fails to register certain benefits
or costs.

29.  markets may also fail to provide an equitable
or fair distribution of resources
 government intervention with its ability to
coerce (the opposite of voluntary) can
regulate, tax and subsidize to change market
outcomes
 efficiency and equity: the pie analogy
 if government intervention always the proper
solution?

30.  Principle # 8 – A country’s standard of
living depends upon its ability to produce
goods and services
 Adam Smith’s “An Inquiry into the Nature and
the Consequences of the Wealth of Nations”
 Materialism – more toys mean more welfare
 wealth: a necessary or sufficient condition for
happiness (are rich people happier, children with
lots of toys)
 leisure time and productivity

31.  the factors of production: land or natural
resources, labor, capital, entrepreneurship
 technology and productivity
 the rule of 72 for growth rates

32.  Principle #9 – The general level of prices
rises when the government prints and
distributes too much money
 definition of money, the concept of snow to
Inuits, and economic language
 inflation is an increase in the general or
average level of prices in an economy
 “not worth a continental” and recent example
in Argentina
 the establish of the Federal Reserve and the
introduction of sustained inflation in the US

33.  Principle #10 – Society faces a short-run
tradeoff between inflation and
unemployment
 Short-run and the long-run
 demand and supply shocks
 short-run increases (decreases) in output
above (below) long-run potential output lead
to adjustments
 countercyclical stabilization versus pro-cyclical
destabilization
 political business cycles

34.  You have to bring in pictures of some of
the things you would like to buy if you
wanted to be in fashion
 Watch video on YouTube
 Last Week Tonight with John Oliver:
Fashion (HBO)
https://www.youtube.com/watch?v=VdLf
4fihP78
 Go through news on fashion economics
 Movie: http://truecostmovie.com/

35.  /
 This is a story about clothing. It’s about the clothes we
wear, the people who make them, and the impact the
industry is having on our world. The price of clothing has
been decreasing for decades, while the human and
environmental costs have grown dramatically. The True
Cost is a groundbreaking documentary film that pulls back
the curtain on the untold story and asks us to consider,
who really pays the price for our clothing?
 Filmed in countries all over the world, from the brightest
runways to the darkest slums, and featuring interviews
with the world’s leading influencers including Stella
McCartney, Livia Firth and Vandana Shiva, The True Cost is
an unprecedented project that invites us on an eye opening
journey around the world and into the lives of the many
people and places behind our clothes.

36.  http://fashion-
history.lovetoknow.com/fashion-clothing-
industry/economics-clothing
 https://www.weforum.org/agenda/2015/
07/5-things-you-probably-didnt-know-
about-the-fashion-industry/
 https://infographicslist.files.wordpress.co
m/2013/05/fashion.png