The Free Enterprise System Chapter 5 The Free Enterprise System

Section 5.1 Market Oriented Economic Systems Objectives Explain the characteristics of a free enterprise system Distinguish between price and nonprice competition Explain the theory of supply and demand

Basic Principles Free Enterprise System ~ Encourages people to start & operate their own business without government involvement.

Basic Principles Freedom of Ownership ~ Free to own property, cars, computers, homes, etc……

Basic Principles Intellectual Property Rights ~ Are protected in a free enterprise system. Patents ~ On an invention, you alone own the rights to that item or idea. Trademark ~ Is a word, name, symbol, sound or color that identifies a good or service & cannot be used by anyone but the owner. Copyright ~ Anything that is authored by an individual such as writings, music & artwork.

Basic Principles Competition Is essential for a Free Enterprise System Forces better-quality goods & services Price Competition ~ Focuses on the sale price of a product. Nonprice Competition ~ Businesses compete on the basis of other factors such as quality of product, service, location & reputation.

Basic Principles Competition Business Risk Monopolies ~ Exclusive control over a product or the means of producing it. Business Risk Potential for loss or failure One out of every three businesses fail Risk of being sued or having name tarnished Natural Disasters Risk when new product is developed

Product Development Risks Bill Cosby introduces the new Coke (1985) Bill Cosby NEW Coke Commercial 1985 1985 Pepsi commercial- "They changed my Coke"

Basic Principles Profit Is the money earned from conducting business after all costs & expenses have been paid. Is the MOTIVATOR, REWARD, More Efficient Economic Costs of Unprofitable Firms Layoff People Less Taxes Paid Everyone Impacted

Basic Principles Profit Economic Benefits of Successful Firms More People Hired Possible Higher Income More Taxes Paid Win/Win Situation Generates More Competition

Basic Principles Supply & Demand Supply ~ The amount of goods producers are willing to make & sell Law of Supply Demand ~ Consumer willingness & ability to buy products Law of Demand

Basic Principles Supply & Demand Surpluses ~ When supply exceeds demand. Shortages ~ When demand exceeds supply, shortages of product occur. Equilibrium ~ When amount of a product being supplied is equal to the amount being demanded.

Section 5.2 Business Opportunities Objectives Compare for-profit & nonprofit organizations Distinguish between the public & private sectors List the major types of businesses in the industrial market

Types of Business Size & Scope Small Business ~ Fewer than 100 Employees 95% of Businesses in US are Small Business Large Business ~ More than 1000 Employees

Types of Business Size & Scope Domestic Business ~ Sells products only in the country they are in. Limits the company growth & possible profit. Global Business ~ Sells all over the world. Internet has made a huge impact on this.

Types of Business Purpose For-Profit Business ~ Goal is to make a profit. Nonprofit Organization ~ Uses money to fund the cause. Public Sector ~ Schools, City Business, Government Agency Private Sector ~ Everything Else

Types of Business Industry & Markets North American Industry Classification System (NAICS) ~ How businesses are classified Derived Demand ~ Based on demand for consumer goods & services. Example supplying auto parts. (Trickle down)

Types of Business Industry & Markets Wholesalers ~ Receives goods from manufacturer then sells onto retailer. Retailers ~ Buys goods from wholesalers.

The Functions of Business Four main functions of a business Functions are ESSENTIAL for a business to continue All Four functions must be performing well or possible failure of business SOUND FAMILIAR???

The Functions of Business Production & Procurement Production ~ The process of creating, expanding, manufacturing or improving on goods or services. Procurement ~ Buying & reselling goods that have already been produced.

The Functions of Business Production & Procurement SWOT Analysis The five “rights” of merchandising are having…. The right goods At the right time In the right place At the right price In the right amount

The Functions of Business Marketing The Role of Marketing Activities The time period from producer to consumer is considered marketing activities.

The Functions of Business Management Management ~ The process of achieving company goals by effective use of resources.

The Functions of Business Finance & Accounting Finance ~ is the function of business that involves money management. Accounting ~ is the discipline that keeps track of a company’s financial situation.