Entrepreneurs in a Market Economy 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?

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

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

Lesson 2.1 Entrepreneurs 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

Terms needs wants economic resources Chapter 2

Is It a Need or a Want? needs wants 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

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

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

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needs vary from individual to individual vary by situation Chapter 2

Wants economic wants noneconomic 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

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

What is the difference between needs and wants? Chapter 2

Economic Resources economic resources goods services 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

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

Factors of Production natural resources human 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

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

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

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

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

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

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

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

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

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

Terms capitalism profit economic decision making scarcity opportunity cost Chapter 2

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

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

Traditional Economy Mixed 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

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

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

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

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

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

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

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

Scarcity Opportunity Cost 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

What factors affect economic choices? Chapter 2

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

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

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

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

What are the functions of business? Chapter 2

Lesson 2.3 What 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

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

How Much Is Enough? supply demand 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

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demand elasticity elastic demand inelastic demand 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

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

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What effect do supply and demand have on the price of a good or service? Chapter 2

Costs of Doing Business fixed costs (sunk costs) costs that must be paid regardless of how much of a good or service is produced variable costs costs that fluctuate depending on the quantity of the good or service produced Chapter 2

Fixed costs will be incurred regardless of the level of sales. Businesses with many fixed costs have a higher risk than businesses with mostly variable costs. Chapter 2

marginal benefit marginal cost measures the advantages of producing one additional unit of a good or service marginal cost measures the disadvantages of producing one additional unit of a good or service Chapter 2

How do the costs of doing business affect prices? Chapter 2

Market Structure and Prices Perfect Competition Characteristics of perfect competition include: a very large number of businesses nearly identical products many well-informed buyers difficult to raise prices consumers have more control over the market businesses can leave or enter the market easily Chapter 2

Monopolistic Competition Characteristics of monopolistic competition include: a large number of independent businesses goods and services that are somewhat different each business has a small share of the market prices are determined competitively differentiating products is important businesses can easily enter or leave the market Chapter 2

Oligopoly Characteristics of an oligopoly include: a small number of businesses that obtain the majority of total sales revenues the goods are similar and are close substitutes businesses can influence prices it is hard to enter the market Chapter 2

Monopoly Characteristics of a monopoly include: a single provider of a product or service complete price control if prices get to high, consumers may elect to do without the product or service entry barriers exist that inhibit competition Chapter 2

How does the market structure affect the price of a good or service? Chapter 2

PERFORMANCE INDICATORS EVALUATED Understand how a current issue affects the economy. Communicate an opinion based upon facts and figures. Chapter 2

Manage time effectively to research, outline, and present a viewpoint. Work as a team to persuade the audience to support a certain viewpoint. Manage time effectively to research, outline, and present a viewpoint. Demonstrate effective teamwork and align ideas into a persuasive argument. Chapter 2

THINK CRITICALLY What are two advantages of allowing illegal immigrants to stay in the United States? Why are businesses concerned about the government’s actions involving illegal immigrants from Mexico? Chapter 2

Why are politicians conflicted by the illegal immigrant issue? How can the United States ensure that illegal immigrants take the necessary steps to obtain legal citizenship? Chapter 2