Building your business Unit 2-part 1

Needs vs Wants  Needs-things you must have in order to survive ex food, water, air  Wants-things you think you must have in order to be satisfied ex. Computers, jewelry, designer clothes

Maslow’s Hierarchy of Needs  5 areas of needs Lowest-physiological-sleep, food, water shelter, air Security-physical safety and economic security Social-friends, love, well-being Esteem-respect and recognition Highest-self actualization-to realize your potential

Economic resources  Factors of Production Natural resources-raw materials Human resources-laborers and entrepreneurs Capital resources-assets invested in the production of goods(factories, equipment)  Scarcity-the conflict between unlimited wants and limited resources

Role of Entrepreneurs  Supply and Demand-meeting people’s needs and wants  Capital investment and job creation- investing in local community by providing jobs and utilizing or enhancing community resources(ex-leasing a building, buying equipment  Change agents-creating products that change the way people live and do business

Economic decision making  Choosing which needs and wants to satisfy using available resources  Two factors: Scarcity Opportunity cost-the value of the next best alternative(the one you pass up)

Functions of Business  Production-creating or obtaining products or services for sale  Marketing-attracting as many customers as possible Marketing mix-price, product, place and promotion  Management-developing, implementing, and evaluating plans and activities  Finance-obtaining capital and planning and managing the financial records

Supply and Demand  Supply-how much a producer is willing to make or sell  Demand-how much a consumer is willing to buy  The intersection is the equilibrium point where supply equals demand.

Example

Cost of Doing Business  Fixed costs(sunk costs)-costs that must be paid no matter how much is produced(ex: lease or mortgage, salaries)  Variable costs-costs that vary with the amount of production ex: raw materials, hourly employees  Marginal benefit-measures the advantage of producing one additional item  Marginal cost-disadvantage of producing one additional good

Market structure  Perfect competition-consists of a large number of producers making nearly identical products with many buyers, price is deciding factor(ex: gasoline, wheat, corn)  Monopolistic competition-large number of businesses with somewhat different products, differentiating becomes important(ex: computers, jeans)  Oligopoly-small number of businesses, usually high cost of entry(ex: airlines, automobiles)