Importance of Entrepreneurship in the Economy

Vocabulary Capital Capitalism Command economy Demand Demand curve Economic system Economics Economics of one unit Economy Enterprise Equilibrium point Equilibrium price Equilibrium quantity Free enterprise system Market economy Mixed economy Nonprofit organization Profit motive Scarcity Supply Supply and demand curve Supply curve Voluntary exchange Vocabulary

What is an Economic System? Economics – a social science concerned with how people satisfy their demands for goods (things you can buy) and services (things people do for a fee) when the supply of those goods and services is limited. Scarcity – not enough to meet the demand Economic system or economy – method used by society to allocate goods and services amongst its people and to cope with scarcity. What is an Economic System?

Fundamental Questions of Economics What goods are produced? What quantity of goods and services are produced? How are goods and services produced? For whom are goods and services produced?

. What is an economic system?

Types of Economic Systems The Market Economy The Command Economy Types of Economic Systems

Government controls the production, allocation,and prices of goods and services. Associated with socialism and communism China, Russia, Iran, Haiti, Cuba, Vietnam, North Korea, Guyana, Venezuela, Zimbabwe, Angola, Republic of Congo, and the Central African Republic. Entrepreneurship? The Command Economy

Suppliers and consumers control the production, allocation, and prices of goods and services. Prices responsive to consumer demand. Voluntary exchange Free enterprise system Enterprise = Business Capital = cash and goods a business owns Capitalism – free to own and trade goods and invest cash in businesses. The Market Economy

What are three types of economic systems? . What are three types of economic systems?

Supply and Demand

The quantity of goods and services a business is willing to sell at a specific price and specific time Supply

Supply curve shows the quantity of a product or service a supplier is willing to sell across a range of prices over a specified time. Why is a supplier willing to provide greater quantities as the selling price increases? Supply Curve

A demand curve shows the quantity and price relationship acceptable to consumers. Why is the demand curve sloping in a different direction than the supply curve? Demand Curve

Supply and Demand Curve Shows relationship between price and the quantity of a product or service that is supplied and demanded. Equilibrium point – supply and the demand are balanced. Equilibrium quantity – if supplier produces more than the equilibrium quantity, there will be a surplus. Less = shortage. Equilibrium price – price buyers are willing to accept. Supply and Demand Curve

What is a supply and demand curve? . What is a supply and demand curve?

Competition in a Market Economy Competition between suppliers - lower price > consumers buy from that supplier > competition pushes prices downward. Another benefit – encourages innovation and variety. Competition between consumers – customers willing to pay any price for item > pushes prices higher. Competition in a Market Economy

Incentive that encourages entrepreneurs to take business risks in order to make a profit. Benefits of Profit: Build wealth Grow the business Save for slow times. Profit Motive

Calculation of the profit (or loss) for each unit of sale made by a business. One Unit = one item, one box, one haircut, one hour. Unit of sale has a selling price and an expense to the entrepreneur. Selling price – Expense = Profit (or Loss) (Profit/Selling Price) x 100 = Profit % Economics of One Unit

An entrepreneur buys plain backpacks and decorates them at home with hand drawn art, stitching, buttons, and stickers before reselling them at the flea market for $25.00 each. Because each backpack is different, the entrepreneur uses an average backpack as the unit of sale.

The expenses to the entrepreneur per unit of sale are: Plain backpack……………………………………$11.00 Ink, thread, buttons, etc……………………………$3.00 Labor………………………………………………$6.00 Expenses per unit of sale………………………....$20.00 ________________________________________________ The economics of one unit of sale are: Selling price per unit of sale……………………..$25.00 Expenses per unit of sale……………………….- $20.00 Profit per unit of sale…………………………….$5.00 The profit as a percentage of sales is: Profit per unit of sale x 100 $5.00 x 100 = 20% Selling price per unit of sale $25.00

Nonprofit Organization Operate solely to serve the good of society Not governmental organizations $$$ come from donations, government grants, or the sales of goods to consumers. Profits are not to be used for personal gain. Nonprofit Organization