chapter 1 entrepreneurship and the economy. four steps to set financial goals 1. realistic goals...

Chapter 1

Entrepreneurship and The Economy

Four Steps to set Financial Goals

1. Realistic goals should be set2. Goals should be specific3. Goals should have a time frame

associated with them.4. Your goals should help you decide

what type of action to take

Small Business andEntrepreneurship

Entrepreneur- Is a person who undertakes the creation, organization, and ownership of a business.A Venture-Is a new business undertaking that involves risk.


Entrepreneurship-Is the process of recognizing an opportunity, testing it in the market, and gathering resources necessary to go into business.Entrepreneurial-Means acting like an entrepreneur or having an entrepreneurial mind-set.


33% of all households are involved with a new venture or small business often it’s a family business.90% of all businesses are small businesses with fewer than 100 employees62% of those are home-based businesses.In today’s global marketplace, businesses feel pressured to provide better service with more options available to the consumer.


Economics-Is the study of how people choose to allocate scarce resources to fulfill unlimited wants.

Economic Systems

An economic system includes a set of laws, institutions, and activities that guide economic decisions.

THE FOUR FUDAMENTAL QUESTIONS1. What goods should be manufactured?2. What quantities should be produced?3. How should the goods be produced?4. For whom are they for?

The Free Enterprise System

In a free enterprise system, people have an important right to make economic choices:-People choose what to buy-People can choose to own Private Property.-People can choose to start a business and compete with other businesses.


The free enterprise system is also called Capitalism or a Market Economy.


There are three basic components to the free enterprise system:

1. The Profit Motive- Making profit is a primary incentive of free enterprise. Profit is money left over after all expenses of running a business have been deducted from the income.


2. The Role of Competition- Competition between similar businesses is one of the basic characteristics of free enterprise. It provides choices, improves quality, improves efficiency in production, leads to surpluses, which in turn reduces prices.


3. Market Structures- the term Market Structure refers to the nature and degree of competition among businesses operating in the same industry. Market structure does affect market prices of goods.


There are four types of market structures:

1. Perfect Competition- is a market structure in which there are numerous buyers and sellers. The good or service must be identical or very similar. There is no difference in quality. Sellers can enter the market very easily. Economic efficiency drives this type of Competition.


2. Monopolistic Competition- is a type of market structure in which many sellers produce similar, but differentiated products. Through differentiation sellers have some power to control the price of their products. By making its product slightly different, the monopolistic competitor tries to dominate a small portion of the market.


3. Monopoly- is a market structure in which a particular commodity has only one seller who has control over supply and can exert nearly total control over prices.


4. Oligopoly- is a market structure in which there are just a few competing firms. Example- Automobile companies. The large companies can sell at lower prices than the small companies, so they do have some influence over pricing.


The free enterprise system can not operate without these4 Factors Of Production:

Defined as the resources businesses use to produce the goods and services that people want.

1. Land- in economic terms, land is all of the natural resources upon and beneath the earth’s surface. Land includes air, water, trees, minerals, and crude oil.


2. Labor- the human effort put forth to create goods and services.

3. Entrepreneurship- this factor consists of the ideas and decisions of the business owner, or entrepreneur. He or she is the initiator, the one who brings together the other factors of production to create value in the economy.


4. Capital- consists of the equipment, factory, tools, and other goods needed to produce a product. It also includes money used to pay all of the expenses.

Basic Economic Concepts Goods and Services- Tangible vs Intangible

Needs and Wants- Basics for survival vs Non Basics for survival.

Factors of Production- defined earlier

Scarcity- occurs when demand exceeds supply.

Supply and Demand Theory

In a free enterprise system, the price of a product is determined in the marketplace. Sellers want to sell at the highest possible price, while buyers what to buy at the lowest possible price. Buyers decide what they are willing to pay for a product or service. See Page 12.


Supply and Demand interact together to determine the price customers are willing to pay for the number of products manufacturers want to produce.


3 basic concepts of Supply & Demand:

-When demand is heavy, and short in supply the price goes up.

-When supply is heavy, and short in demand the prices come down.

-Where demand equals supply, prices stabilize.


Demand defined- It is the quantity of goods and services that consumers are willing and able to buy at any given time.

According to the Law of Demand when price goes up, the quantity demanded goes down. In this way the market prices ration goods and services among those who are willing and able to pay for them. See figure 1.2 on page 12.


The degree to which demand for a product is affected by its price is called demand elasticity.

Products either have elastic or inelastic demand.


Elastic demand refers to situations in which a change in price creates a change in demand. The demand for butter tends to be elastic because there are lower priced substitutes.

Inelastic demand- refers to situations in which a change in price has very little effect on the demand for a product. Milk has no substitutes.


Demand tends to be inelastic in these circumstances:

1. No acceptable substitutes2. The price change is small

compared to buyer income3. The product is a necessity


Diminishing Marginal Utility defined- Even when the price of a product is low,

people will not keep on buying it indefinitely. Consumers will not buy more than what they can use. This law establishes that price alone does not determine demand. Other factors include income, taste, and the amount of product already owned.


Supply Defined- is the amount of goods producers are willing to produce at any given price. When prices are high, producers want to manufacture more. And when the price of a good goes down, producers manufacture less. See figure 1.3 on page 12.


Surplus, Shortage and Equilibrium-

See figure 1.4 on page 12. Any quantity of product above where the supply and demand curve meet is a surplus, and any quantity below where the supply and demand curves meet is a shortage. Where the two meet is called the equilibrium price.

Economic Indicators and Business Cycles

The federal government publishes statistics that help entrepreneurs understand the state of the economy and predict possible changes. These statistics are called Economic Indicators.

Examples include employment rate, consumer confidence, and gross domestic product (GDP).


Gross Domestic Product Defined-It is the total market values of goods and services produced by workers and capital within a nation during a given period.

Economic Indicators and Business Cycles The Federal Reserve-

The FED is a government agency that controls the economy and regulates the nation’s money supply. The FED can lend out money, controls the interest rates, buys and sells government securities to increase or decrease money supply. It constantly monitors the economy and makes changes when necessary.


Business Cycle-Is the general pattern of expansion and contraction that the economy goes through. Business cycles mean that a period of growth and prosperity is usually followed by a recession.

The Entrepreneurial Startup Process

1-The Entrepreneur- He or she the driving force of the

start up process. The entrepreneur recognizes

opportunity.He or she pulls together resources to

start the business.


2-The Environment-The nature of the environment, uncertain, fast-

changing, stable, or highly competitive.The availability of resources such as labor and

capital.Ways to realize values, such as favorable

taxes, good markets and supportive gov’t policies.

Incentives to create new businesses.


3-The OpportunityA good opportunity can be turned

into a business. It is an idea that has commercial value.


4-Start-Up Resources- This includes capital, skilled labor,

management expertise, legal and financial advice, facility, equipment, and customers needed to start a business.


Enterprise Zones- are specially designed areas of a community that provide tax benefits to new businesses locating there. They also provide grants for new product development.


5-New Venture Organization-Is the infrastructure of the business.

It is the foundation that supports all of the products, processes, and services of the new business.

Business Failure

Is defined as a business that has stopped operating with a loss to creditors. A business failure files a chapter 7 bankruptcy.

Discontinuance

Is defined as a business that is operating under a new name. It may also be a business in which the owner has purposely discontinued to start a new one.

Entrepreneur Contributions Entrepreneurs turn demand into

supply. They are the primary source of

venture capital. They start with their own funds, then seek investors.

They provide jobs. They change society with new

innovative products. Computers etc. They respond to people’s wants.

chapter 1 entrepreneurship and the economy. four steps to set financial goals 1. realistic goals...

Documents

free enterprise system

small businesses

family business

market economy

new business undertaking

market prices of goods

similar businesses

type of competition