entrepreneurs in a market economy

Entrepreneurship: Ideas in Action© Cengage Learning/South-Western

Chapter

Entrepreneurs in a Market Economy

2.1 Entrepreneurs Satisfy Needs & Wants

2.2 How Economic Decisions are Made

2.3 What Affects Price?

2


Chapter 2Slide 2

Lesson 2.1

Entrepreneurs Satisfy Needs and Wants

Goals Distinguish between needs and wants. Describe the types of economic resources. Describe the role of entrepreneurs in the U.S.

economy.


Chapter 2Slide 3

Is It a Need or a Want? needs

things that are necessary for survival food, basic clothing, shelter

wants things you think you must have in order to be satisfied add comfort and pleasure to your life

The role of business is to produce and distribute goods and services that people need and want.


Chapter 2Slide 4

Needs Maslow’s hierarchy of needs states that:

People’s basic psychological needs must be satisfied before they can focus on higher level needs.

needs vary from individual to individual vary by situation


Chapter 2Slide 5

2.1


Chapter 2Slide 6

Wants economic wants

a desire for material goods and services are the basis of an economy

clothing, housing, cars, hairstyling, medical services

noneconomic wants a desire for nonmaterial things

sunshine, fresh air, exercise, friendship, happiness


Chapter 2Slide 7

Needs and Wants are Unlimited

Needs and wants are infinite.

Satisfying one need or want often leads to a new need or want.

You are only limited by what your mind can think of and what businesses make available for sale.


Chapter 2Slide 8

What is the difference between needs and wants?

What are your needs?

What are your wants?

2.1


Chapter 2Slide 9

Economic Resources economic resources

the means through which goods and services are produced

goods products you can see and touch; purchased

services activities that are consumed as they are

produced; must be provided for consumers


Chapter 2Slide 10

Factors of Production Natural Resources

raw materials supplied by nature oil, minerals, rivers, lakes, oceans

Human Resources the people who create goods and services

Capital Resources assets invested in production of goods/services buildings, equipment, supplies, money needed to

build factory, buy equipment, pay employees


Chapter 2Slide 11

Limited Resources Economic resources are limited.

Individuals, businesses, and countries compete for resources.

High demand for a limited resource drives up the price for the resource.


Chapter 2Slide 12

List the three types of economic resources and give an example of each.


Chapter 2Slide 13

Role of Entrepreneurs in the U.S. Economy Entrepreneurs are the backbone of the

U.S. economy.

The development of small businesses helps to ensure a strong economic future.


Chapter 2Slide 14

Supply and Demand Entrepreneurs look for unmet needs to

satisfy consumer needs and wants.

Entrepreneurs contribute to their local communities through:investmentsjob creation

Capital Investment and Job Creation


Chapter 2Slide 15

Change Agents The creation of new products can:

change the way people live alter the way people conduct business

As entrepreneurs create more goods and services, the needs and wants of consumers increase.


Chapter 2Slide 16

What are some things entrepreneurs contribute to the U.S. economy?


Chapter 2Slide 17

Lesson 2.2

How Economic Decisions are Made

Goals Compare/Contrast different types of economic systems.

Describe the characteristics of the U.S. economy.

Explain how scarcity affects economic decisions.

Explain how business functions are used to satisfy

consumers.


Chapter 2Slide 18

Economic Systems Each economy must answer three basic

questions regarding goods and services:

Which ones will be produced? How will they be produced? What needs and wants will they satisfy?


Chapter 2Slide 19

Command Economy Production decisions are made by the government. No reason to have more than one type of product. Few choices for consumers exist in the marketplace.

Market Economy Production decisions made by individuals/businesses. Many choices exist in the marketplace. Entrepreneurship thrives in a market economy. U.S. Economy = Market Economy

4 Types of Economic Systems 2.2


Chapter 2Slide 20

Traditional Economy Production occurs the way it has always occurred. Most production is consumed. Leftovers sold/traded. Less developed; not participating in the global economy. Lack the formal structure; Limited capital resources.

Mixed Economy Contain elements of command and market economies. Occur when country is shifting from either a command or

traditional economy toward a market economy.

4 Types of Economic Systems


Chapter 2Slide 21

How does the type of economy affect the way the basic economic questions are answered?


Chapter 2Slide 22

The U.S. Economic System U.S. System described as market economy.

Capitalism: the private ownership of resources by individuals rather than by the government individual businesses and consumers make the majority

of production decisions Also called - Free Enterprise - due to the freedom of

businesses and individuals to make production and consumption decisions.


Chapter 2Slide 23

Private Property You may own whatever you want as long as you

operate within the law. Consumers have control of private property.

Freedom of Choice Consumers decide what to purchase and

businesses decide what to produce. Government intervention occurs only when individual

decisions will bring harm to others.

U.S. Economic System4 Economic Principles

2.2


Chapter 2Slide 24

Profit the difference between the revenues taken in by a

business and the costs of operating the business the opportunity to earn a profit is at the heart of the

free-enterprise system.

Competition rivalry among businesses to sell their goods/services. competition encouraged to keep businesses working

to improve their products/services.

U.S. Economic System4 Economic Principles


Chapter 2Slide 25

Describe the four basic principles of the U.S. economic system.


Chapter 2Slide 26

Economic Choices economic decision making

the process of choosing which needs and wants, among several, you will satisfy using the resources you have


Chapter 2Slide 27

Scarcity Occurs when there are limited resources available to

meet the unlimited needs and wants of consumers Forces you to make decisions about tradeoffs.

Opportunity Cost the value of the next-best alternative

(the one you pass up) Decision making which forces you to explore all of

your alternatives and put value to those alternatives.

2 Economic Factors


Chapter 2Slide 28

What factors affect economic choices?


Chapter 2Slide 29

Functions of Business Market Economy – entrepreneurs are free to

produce and offer to consumers any legal product/service.

Four Functions of Business Production, Marketing, Management, Finance Each function is dependent on the others in

order for the business to be effective.


Chapter 2Slide 30

4 Functions of Business Production

A profit is earned by selling products or services to consumers.

The production function creates or obtains products or services for sale.


Chapter 2Slide 31

Marketing Businesses in market economies need to complete

marketing activities in order to make products available.

These activities are known as the Marketing Mix: 4 P’s of Marketing: product, distribution (place), price,

promotion

The goal of marketing is to attract as many consumers as possible so the product succeeds.

4 Functions of Business


Chapter 2Slide 32

Management In a Market Economy - businesses spend a lot of

time developing, implementing, and evaluating plans and activities.

The duties of management include: setting goals deciding on responses to competition solving problems managing employees evaluating business activities



Chapter 2Slide 33

Finance Financial duties include:

determining amount of capital needed determining how to obtain capital resources planning and managing all of the financial aspects

of the business



Chapter 2Slide 34

What are the functions of business?


Chapter 2Slide 35

Lesson 2.3

What Affects Price?

Goals Explain how supply and demand interact to

determine price. Describe how costs of doing business affect

the price of a good or service. Explain the effect of different market

structures on price.


Chapter 2Slide 36

How Much Is Enough? supply

how much of a good/service a producer is willing to produce at different prices

Suppliers are willing to supply more of a product/service at a higher price.

demand an individual’s need or desire for a product or

service at a given price individuals are willing to consume more of a

product/service at a lower price.

2.3


Chapter 2Slide 37


Chapter 2Slide 38


Chapter 2Slide 39


Chapter 2Slide 40

When Supply & Demand Meet equilibrium price and quantity:

the price at which supply equals demand

Above equilibrium price: fewer people are interested in buying goods and services. Suppliers not able to sell as much, priced too high.

Below equilibrium price: the price is too low for producer. Consumers willing to buy; Suppliers not willing to produce.


Chapter 2Slide 41

when demand of a product is affected by its price

elastic demand when change is price creates change in demand

inelastic demand when a change in price creates very little change

in demand

Demand Elasticity


Chapter 2Slide 42

Demand is usually inelastic when: There are no acceptable substitutions for a

product that consumers need.

The change in price is small in relation to the income of consumers, so consumers will continue to buy the product if they want it.

The product is a basic need for consumers, rather than just a want.

Inelastic Demand


Chapter 2Slide 43

What effect do supply and demand have on the price of a good or service?


Chapter 2Slide 44

Costs of Doing Business Entrepreneurs must know how much it costs

to produce their goods/services.

They must consider all the resources that go into producing the good/service to determine what price they should charge.

Fixed and Variable Costs Marginal Benefit and Marginal Cost


Chapter 2Slide 45

Costs of Doing BusinessEvery business has: fixed costs (a.k.a. sunk costs)

costs that must be paid regardless of how much of a good or service is produced

Rent, insurance, loan interest variable costs

costs that fluctuate depending on the quantity of the good or service produced

Supplies used to produce goods/services


Chapter 2Slide 46

Fixed costs will be incurred regardless of the level of sales.

Variable costs will adjust with the level of sales the business has each month.

Businesses with many fixed costs have a higher risk than businesses with mostly variable costs.

Costs of Doing Business


Chapter 2Slide 47

Entrepreneur make decisions based on: marginal benefit

measures the advantages of producing one additional unit of a good or service

marginal cost measures the disadvantages of producing one

additional unit of a good or service

Marginal benefit must outweigh marginal cost. Bakery Example – Book Page 52

Costs of Doing Business


Chapter 2Slide 48

How do the costs of doing business affect prices?


Chapter 2Slide 49

Market Structure and Prices Market structure is determined by competition

among businesses in the same industry. Criteria to distinguish different market structures:

number/size of sellers and buyers in the market type of goods/services being traded barriers to entry into the market for sellers.

Four Major Market Structure: Perfect Competition Monopolistic Competition Oligopoly Monopoly


Chapter 2Slide 50

Market Structure and Prices

Perfect Competition Characteristics of perfect competition include:

a very large number of businesses nearly identical products many well-informed buyers difficult to raise prices consumers have more control over the market businesses can leave or enter the market easily


Chapter 2Slide 51

Monopolistic Competition Characteristics of monopolistic competition include:

a large number of independent businesses goods and services that are somewhat different each business has a small share of the market prices are determined competitively differentiating products is important businesses can easily enter or leave the market



Chapter 2Slide 52

Oligopoly Characteristics of an oligopoly include:

a small number of businesses that obtain the majority of total sales revenues

the goods are similar and are close substitutes businesses can influence prices it is hard to enter the market



Chapter 2Slide 53

Monopoly Characteristics of a monopoly include:

a single provider of a product or service complete price control if prices get to high, consumers may elect to do

without the product or service entry barriers exist that inhibit competition



Chapter 2Slide 54

How does the market structure affect the price of a good or service?

entrepreneurs in a market economy

Documents

situation entrepreneurship

happiness entrepreneurship

employees entrepreneurship

consumers entrepreneurship

higher level needs

types of economic resources

role of entrepreneurs

material goods