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Entrepreneurship in a Market Economy

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Page 1: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Entrepreneurship in a Market Economy

Page 2: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Needs and Wants Needs: things you must have Wants: things you think you must have

Page 3: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Economic Resources Def: The means in which goods and

services are produced Good: something tangible Service: something untanible

Factors of Production (3 Resources) Natural: raw materials Human: people Capital: buildings, equipment, supplies

Page 4: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Law of Diminishing Return All resources are limited

To make the most efficient use of resources business consider law of diminishing returns States that when one factor is increased while

others stay the same, the resulting increase in output will level off at some time and then decline

McDonalds Game

Page 5: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Functions of a Business Production Marketing Management Finance

Page 6: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Supply and Demand Supply: The quantity of a good/service a

producer is willing to produce at different prices

Demand: The quantity of a good/service that consumers are willing to buy at a given price

Page 7: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Supply Curve

Page 8: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Demand Curve

Page 9: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Equilibrium

Page 10: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Demand Elasticity Def: When demand for a product is

affected by its price

Elastic Demand: When change in price creates change in demand

Inelastic Demand: When change in price creates very little change in demand

Page 11: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Reasons for Inelastic Demand There are no acceptable substitutes for

a product consumers need The change in price is so small in

relation to income of consumer The product is a basic need

(physiological) rather than a want

Page 12: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Costs of Doing Business A company that prices its product based

only on cost of materials involved in production will go out of business very quickly!

Fixed Cost Variable Cost

Page 13: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Fixed Cost These are costs that must be paid

regardless of how much of a good or service is produced

Monthly rent Insurance fees Interest

Page 14: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Variable Costs Costs that go up and down depending

on quantity of good or service produced

Price of Flour Price of Coffee

The more bagels a company sells, the more resources it must buy and visa-versa

Page 15: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Difference A business with less fixed cost and more

variable cost is at less risk because if sales are lower the business will not suffer as much with less revenue!

Page 16: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Marginal Benefit and Marginal Cost Marginal Benefit measures the advantage

of producing one additional unit Marginal Cost measures the disadvantage of

producing one additional unit

If Wicker decides that staying open an additional two hours and will make additional revenues of $100 (selling additional sandwiches and drinks) but that it will cost $125 (ingredients, overtime, electricity) to stay open in that time, they would opt against it.

Page 17: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Economies of Scale Economies of scale are the cost

advantages obtained due to expansion Businesses can expand in the following

ways: Size of facility Obtaining specialized machinery Specialization of labor

Economies of scale represent an increase in efficiency of production

Page 18: Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have

Continued Since the number of goods increases a

business that achieves economies of scale lowers the average cost per unit because the cost can be spread out over an increased number of units.

Lower costs per unit allow businesses to lower the price which may attract more customers.