Going Into Business for Going Into Business for YourselfYourself

What is Entrepreneurship?What is Entrepreneurship?

What is Entrepreneurship?What is Entrepreneurship?

Entrepreneur is an individual who Entrepreneur is an individual who undertakes the creation, organization undertakes the creation, organization and ownership of a business. and ownership of a business.

Venture - A business enterprise Venture - A business enterprise involving some risk in expectation of involving some risk in expectation of gain. gain.

What is Economics?What is Economics?

Economics is the study of how people Economics is the study of how people choose to allocate scarce resources choose to allocate scarce resources to fulfill their unlimited wants. to fulfill their unlimited wants. Economics has a great influence on Economics has a great influence on entrepreneurship. entrepreneurship.

3 Fundamental Questions asked of 3 Fundamental Questions asked of the economic systemthe economic system

What goods and services should be What goods and services should be produced and how much in quantity produced and how much in quantity should be produced?should be produced?

How should goods and services be How should goods and services be produced?produced?

For whom should goods and For whom should goods and services be produced?services be produced?

The Free Enterprise SystemThe Free Enterprise System In a free enterprise system (also called In a free enterprise system (also called

capitalism or a market economy), people capitalism or a market economy), people choose what products to buy, what choose what products to buy, what property to own, and can choose to start a property to own, and can choose to start a business and compete with other business and compete with other businesses on their own. businesses on their own.

The price of a product is determined by The price of a product is determined by the marketplace. the marketplace.

Most Democratic nations have this type of Most Democratic nations have this type of enterprise system. enterprise system.

Profit MotiveProfit Motive

Profit - money that is left after all Profit - money that is left after all expenses of running a business have expenses of running a business have been deducted from the income.been deducted from the income.

CompetitionCompetition Provides consumers with choiceProvides consumers with choice

In a free enterprise system, competition forces In a free enterprise system, competition forces companies to improve quality and become more companies to improve quality and become more efficient.efficient.

Leads to surplus, which leads to lower prices.Leads to surplus, which leads to lower prices.

Risk of failure encourages the production of Risk of failure encourages the production of quality products that meet the needs of quality products that meet the needs of consumers consumers

Market StructuresMarket Structures

Perfect competition – the goods or Perfect competition – the goods or service being sold is nearly identical. service being sold is nearly identical.

• Numerous buyers and sellers with no single Numerous buyers and sellers with no single buyer or seller capable of affecting price. buyer or seller capable of affecting price.

Monopolistic competition – many sellers Monopolistic competition – many sellers produce similar but differentiated produce similar but differentiated products. products.

• Retail stores, fast food, gas stationsRetail stores, fast food, gas stations

Monopoly and OligopolyMonopoly and Oligopoly

A Monopoly is when a business is the sole A Monopoly is when a business is the sole supplier of a particular good or service and supplier of a particular good or service and they are given the total control over price. they are given the total control over price. • National Grid, AmtrakNational Grid, Amtrak

Oligopoly is a market in which control over Oligopoly is a market in which control over the supply of a commodity is in the hands the supply of a commodity is in the hands of a small number of larger companies of a small number of larger companies who have dominated the industry. who have dominated the industry. • Ex. Tobacco Industry, Automobile Industry, Ex. Tobacco Industry, Automobile Industry,

Softdrink industry, Basketball sneakersSoftdrink industry, Basketball sneakers

OligopoliesOligopolies

CompanyCompany US BrandsUS Brands Market ShareMarket Share

Philip MorrisPhilip Morris Marlboro, Virginia Slims, Marlboro, Virginia Slims, Benson & Hedges, Merit, Benson & Hedges, Merit, Parliament, Alpine, Parliament, Alpine, CambridgeCambridge

49.9%49.9%

R.J. ReynoldsR.J. Reynolds Camel, Doral, Winston, Camel, Doral, Winston, Salem, Vantage, More, Salem, Vantage, More, MonarchMonarch

22.9%22.9%

BAT/Brown & BAT/Brown & WilliamsWilliams

GPC, Kool, Viceroy, Raleigh, GPC, Kool, Viceroy, Raleigh, Barclay, Lucky StrikeBarclay, Lucky Strike 10%10%

Lorrillard Lorrillard Newport, Kent, True, Old Newport, Kent, True, Old Gold, Max, Style, CrownsGold, Max, Style, Crowns 8.2%8.2%

Liggett & MyersLiggett & Myers L&M, Lark, Chesterfield, EveL&M, Lark, Chesterfield, Eve 2.3%2.3%

CompanyCompany Basketball Basketball

SuperstarSuperstarMarket ShareMarket Share

NikeNike Michael JordonMichael Jordon

(Now)LeBron James(Now)LeBron James60%60%

AdidasAdidas Tracy McGradyTracy McGrady 20%20%

ReebokReebok Allen IversonAllen Iverson 15%15%

What resources does it take for a business What resources does it take for a business to produce a good and service?to produce a good and service?

Factors of Production Factors of Production • Land – geographic territory, air, trees, minerals Land – geographic territory, air, trees, minerals

and crude oiland crude oil• Labor – Human effortsLabor – Human efforts• Capital – money, equipment, toolsCapital – money, equipment, tools• Entrepreneurship – ideas and decisions of Entrepreneurship – ideas and decisions of

business ownerbusiness owner

Scarcity occurs when demand exceeds Scarcity occurs when demand exceeds supplysupply

Supply and Demand Supply and Demand

Demand – quantity of goods and Demand – quantity of goods and services that consumers are willing services that consumers are willing and able to buy.and able to buy.

Supply – goods and services that Supply – goods and services that producers are willing and able to producers are willing and able to provide.provide.

Equilibrium is the point at which Equilibrium is the point at which consumers buy all of a product that consumers buy all of a product that is supplied.is supplied.

Theory of Supply and DemandTheory of Supply and Demand

Heavy demand + Short Supply = Heavy demand + Short Supply = price increase. price increase.

Heavy supply + Short Demand = Heavy supply + Short Demand = Price decrease. Price decrease.

Prices tend to stabilize at the level Prices tend to stabilize at the level where demand equals supplywhere demand equals supply• Equilibrium pointEquilibrium point

Supply/DemandSupply/Demand

Elastic demand – a change in price Elastic demand – a change in price creates a change in demandcreates a change in demand

• ButterButter Inelastic demand – a change in Inelastic demand – a change in

price has little effect on demand for price has little effect on demand for product. product.

• MilkMilk

ECONOMIC INDICATORSECONOMIC INDICATORS

Employment rateEmployment rate

Consumer confidenceConsumer confidence

GDP ( Gross Domestic Product) – GDP ( Gross Domestic Product) – • the total market value of goods and the total market value of goods and

services produced by workers and services produced by workers and capital within a country during a given capital within a country during a given period.period.

Business CycleBusiness Cycle

Economy is growing rapidly = Economy is growing rapidly = inflationinflation

Economy is slowing down = Economy is slowing down = deflation. deflation.

Start-Up Process – 5 Key Start-Up Process – 5 Key ComponentsComponents

Entrepreneur – driving force of start up Entrepreneur – driving force of start up process. process.

EnvironmentEnvironment• Enterprise Zone – specially designated areas of Enterprise Zone – specially designated areas of

a community that provide tax benefits to new a community that provide tax benefits to new businesses locating there. businesses locating there.

OpportunityOpportunity Start-Up ResourcesStart-Up Resources New Venture OrganizationsNew Venture Organizations

New Business FailureNew Business Failure

A business failure is a business that A business failure is a business that has stopped operating with a loss to has stopped operating with a loss to creditors. creditors.

Discontinuance is when a business is Discontinuance is when a business is operating under a new nameoperating under a new name

Supply CurveOriginal Supply

Quantity

Price

Increase in supply

Shift to the right

Decrease in supply

Shift to the left

Demand CurveOriginal Demand

Quantity

PriceDecrease in demand

Shift to the left Increase in demand

Shift to the right

How to read a graph!Apple Juice Market

Original E. P.

Original DemandOriginal Supply

Price

Quantity1 2 3 4 5 6 7

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New E.P.