Entrepreneurs in a Market Economy

1. 2 Entrepreneurs in a Market Economy 2.1 Entrepreneurs Satisfy Needs and Wants 2.2 How Economic Decisions are Made 2.3 What Affects Price?

2. Ideas in Action Web Site Design • Scott Smigler, founder of Exclusive Concepts, Inc., developed his business while still in high school. • Together with Eric Golden, Scott founded the Bentley Entrepreneur Society to help students who are interested in Entrepreneurship. Chapter 2

3. Important business lessons Scott has learned include: • Perseverance • Mentorship • Communication • Capitalization • Marketing Chapter 2

4. Lesson 2.1Entrepreneurs 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 2

5. Terms • needs • wants • economic resources Chapter 2

6. Is It a Need or a Want? • needs • things that are necessary for survival • wants • things you think you must have in order to be satisfied • add comfort and pleasure to your life Chapter 2

7. The role of business is to produce and distribute goods and services that people need and want. Chapter 2

8. Needs • Maslow’s hierarchy of needs states that: • People’s basic psychological needs must be satisfied before they can focus on higher level needs. Chapter 2

9. Chapter 2

10. needs • vary from individual to individual • vary by situation Chapter 2

11. Wants • economic wants • a desire for material goods and services • are the basis of an economy • clothing • housing • hairstyling • noneconomic wants • nonmaterial things • sunshine • fresh air • happiness Chapter 2

12. Needs and Wants are Unlimited • Needs and wants are infinite. • Satisfying one need or want may trigger a new need or want. Chapter 2

13. What is the difference between needs and wants? Chapter 2

14. Economic Resources • economic resources • the means through which goods and services are produced • goods • products you can see and touch • services • activities that are consumed as they are produced Chapter 2

15. Entrepreneurs use economic resources to create the goods and services consumers use. Chapter 2

16. Factors of Production • natural resources • raw materials supplied by nature • human resources • the people who create goods and services • capital resources • the assets invested in the production of goods and services Chapter 2

17. 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 2

18. List the three types of economic resources and give an example of each. Chapter 2

19. 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 2

20. Supply and Demand • Entrepreneurs look for unmet needs to satisfy consumer needs and wants. Chapter 2

21. Capital Investment and Job Creation • Entrepreneurs contribute to their local communities through: • investment • job creation Chapter 2

22. 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 2

23. What are some things entrepreneurs contribute to the U.S. economy? Chapter 2

24. Lesson 2.2How Economic Decisions are Made Goals • Compare and contrast different types of economic systems. • Describe the characteristics of the U.S. economy. Chapter 2

25. Explain how scarcity affects economic decisions. • Explain how business functions are used to satisfy consumers. Chapter 2

26. Terms • capitalism • profit • economic decision making • scarcity • opportunity cost Chapter 2

27. 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 2

28. A variety of economic systems exist. • Command Economy • Production decisions are made by the government. • Few choices exist in the marketplace. • Market Economy • Production decisions are made by individuals and businesses. • Ample choices exist in the marketplace. • Entrepreneurship thrives in a market economy. Chapter 2

29. Traditional Economy • Production occurs the way it has always occurred. • Most production is consumed. • Left over production is sold or traded. • Countries with traditional economies are not participating in the global economy. • Mixed Economy • These economies contain elements of command and market economies. • Sometimes these economies occur because a country is shifting from either a command or traditional economy toward a market economy. Chapter 2

30. communism • a command economic system • government-led plans direct resources toward economic growth Chapter 2

31. How does the type of economy affect the way the basic economic questions are answered? Chapter 2

32. The U.S. Economic System • 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 Chapter 2

33. The U.S. economic system of capitalism is based on four economic principles. • Private Property • You may own whatever you want as long as you operate within the law. • Freedom of Choice • Government intervention occurs only when individual decisions will bring harm to others. Chapter 2

34. 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 • the rivalry among businesses to sell their goods and services Chapter 2

35. Describe the four basic principles of the U.S. economic system. Chapter 2

36. Economic Choices • economic decision making • the process of choosing which needs and wants, among several, you will satisfy using the resources you have Chapter 2

37. Scarcity • occurs when there are limited resources available to meet the unlimited needs and wants of consumers • Scarcity forces you to make decisions about tradeoffs. • Opportunity Cost • the value of the next-best alternative (the one you pass up) Chapter 2

38. What factors affect economic choices? Chapter 2

39. Functions of Business • Production • A profit is earned by selling products or services to consumers. • The production function creates or obtains products or services. Chapter 2

40. Marketing • The goal of marketing is to attract as many consumers as possible. • The marketing mix includes: • product • distribution • price • promotion Chapter 2

41. Management • The duties of management include: • setting goals • deciding on responses to competition • solving problems • managing employees • evaluating business activities Chapter 2

42. Finance • Financial duties include: • determining capital requirements • determining capital resources • managing the financial aspects of the business Chapter 2

43. What are the functions of business? Chapter 2

44. Lesson 2.3What 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 2

45. Terms • supply • demand • equilibrium price and quantity • fixed costs • variable costs • marginal benefit • marginal cost Chapter 2

46. How Much Is Enough? • supply • how much of a good or service a producer is willing to produce at different prices • demand • an individual’s need or desire for a product or service at a given price Chapter 2

47. Chapter 2

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49. demand elasticity • when the demand of a product is affected by its price • elastic demand • when a change is price creates a change in demand • inelastic demand • when a change in price creates very little change in demand Chapter 2

50. When Supply and Demand Meet • equilibrium price and quantity • the price at which supply equals demand Chapter 2