Entrepreneurship Standard 2 Objective 1

Entrepreneurship – Standard 2 Students will understand how economic concepts effect decision making in an entrepreneurial venture.

Business Opportunity A business opportunity is a consumer need or want that can be potentially met by a new business. Business opportunities are created when entrepreneurs daydream about products or services they would love to have in their own lives.

Scarcity When wants are greater than resources. When there is a shortage of a product & the demand is high the prices will go up!

Supply & Demand A supply curve on a graph shows the quantity of a product or service a supplier is willing to sell across a range of prices over a specified period of time.

Supply & Demand A demand curve on a graph shows the quantity of a product or service consumers are willing to buy across a range of prices over a specified period of time.

Supply & Demand Curves

Profit Motive Profit is a business’s reward for successfully providing goods and services that satisfy consumers’ demands. The profit motive is an incentive that encourages entrepreneurs to take business risks in the hope of making a profit. Entrepreneurs who consistently make a profit over time can build their own wealth and ensure financial independence. Many entrepreneurs use profit to benefit their existing businesses, start new ones, or invest in the enterprises of others.

Cost vs Price Cost Price Cost refers to the amount paid to produce a good or service. The cost represents the sum of the value of the inputs in production - land, labor, capital and enterprise Price refers to the amount of money that consumers have to give up to acquire a good or service.

Fixed Expense/Cost

Variable Costs The two types of variable costs are: Cost of Goods Sold (COGS). For manufacturing and merchandising (retailing and wholesaling) businesses, the variable expense that is associated with each unit of sale is called the cost of goods sold. Other Variable Expenses. These can include such expenses as commissions for salespeople, shipping and handling charges, or packaging.

Selling Price – Expense = Profit (or Loss) Economics of One Unit The economics of one unit is a calculation of the profit (or loss) for each unit of sale made by a business. Calculate the economics of one unit by subtracting the expenses for the unit of sale from its selling price. A unit of sale has a selling price to the consumer and an expense for the entrepreneur. The economics of one unit is the difference between the selling price and its expense. Selling Price – Expense = Profit (or Loss)

(Profit/Selling Price) x 100 = Profit % Economics of One Unit A way to look at profit is as a percentage of the selling price. This calculation tells an entrepreneur the profit percentage based on sales. The formula per unit of sale is: (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 each. Because each backpack is different, the entrepreneur uses an average backpack as the unit of sale.

What Is a Break-Even Point? On an income statement, if the costs and expenses were exactly equal to the sales, there would be neither a profit nor a loss and net income would be zero. This is called the break-even point, because the business has sold exactly enough units to cover costs. Break-even analysis examines the income statement to identify the break-even point for a business. A break- even analysis examines how many units of a product (or hours of a service) a business must sell to pay all its costs. Section 12.2: Break Even Analysis

Operating Expenses ÷ Gross Profit per Unit = Break-Even Units Break-Even Analysis Use break-even analysis to determine how many units of a product a business must sell to pay all its expenses. The gross profit of the business (Total Sales - Total COGS) is used to pay operating expenses. Break-even units are the number of units of sale a business needs to sell to arrive at the break-even point (where the bottom line is zero). Operating Expenses ÷ Gross Profit per Unit = Break-Even Units

The Global Economy The global economy is the flow of goods and services around the whole world. Exporting is the business activity in which goods or services are sent from a country and sold to foreign consumers. Importing is the business activity in which goods and services are brought into a country from foreign suppliers. Modern technology connects suppliers and consumers around the world. The Internet, in particular, has made international trade easier, faster, and more convenient than ever before.