1. Unit 1- Entrepreneurship and the Economy 1.1

2.   The process of getting into and operating one’s own business. Entrepreneurship

3.   An individual who undertakes the creation, organization and ownership of a business.  He or she accepts the risks and responsibilities of business ownership to gain profits and personal satisfaction. Entrepreneur

4.   The study of how people choose to allocate scarce resources to fulfill their unlimited wants.  Economics has a profound influence on entrepreneurship. Economics

5.   Must answer 4 questions.  1. What goods and services should be produced?  2. What quantity of goods and services should be produced?  3. How should goods and services be produced?  4. For whom should goods and services be produced? Economic Systems

6.   History has produced several different types of economic systems:  Traditional-relies on farming and simple barter trade  Mid-evil times  Command- ran by a strong centralized government  Communism  Market-based on supply and demand with little government control.  The Free Enterprise System  Mixed-Now based on the combined principles of market and command economies. Economic Systems

7.   An economic system in which people have the right to make economic choices.  People can choose what products to buy.  People can choose to own private property.  People can choose to start a business and compete with other businesses.  Without the Free Enterprise System Entrepreneurship would not be possible. It is a vital component The Free Enterprise System

8.   Competition between similar businesses is one of the basic characteristics of a Free Enterprise System.  Businesses compete on the basis of price and non- price factors  Why?  Provides choices  Forces companies to improve quality and become more efficient The Role of Competition

9.  Price  Leads to a surplus which brings price down.  Lower costs come from producing in higher volume and a more experienced workforce Non-Price  Quality  Service  Reputation

10.   Profit: Money left after all the expenses of a business have been deducted from the income.  Making a profit is a primary incentive of the free enterprise system. It is one way of measuring success in a free enterprise system. Profit Motive

11.   Refers to the nature and degree of competition among businesses operating in the same industry.  Market structure affects market price.  4 different types of market structures.  1. Perfect Competition  2. Monopolistic Competition  3. Monopoly  4. Oligopoly Market Structure

12.  Market Structures Perfect Competition  Market with numerous buyers and sellers and no single buyer or seller can affect price. Monopolistic Competition  Many sellers produce similar but differentiated products. Sellers have some power to control the price of their products.

13.  Market Structures Monopoly  When a company controls all of a market. There is no competition  A company that has a monopoly is able to charge more than a company that has to compete with other companies.  Consumers have nowhere else to go. They will continue to buy a product or service even if the producer raises prices. Oligopoly  When there are just a few competing firms.  Such as the automobile industry.

14.   The resources businesses use to produce the goods and services people want. 1.Land- Natural resources 2.Labor-human effort used to produce goods and services 3.Capital- the equipment, factory, tools and other goods needed to produce a product. 4.Entrepreneurship-The ideas and decisions of the business owner. They bring together the other factors to create value. Factors of Production

15.   Goods and Services are the products our economic system produces to satisfy consumers’ wants and needs.  Goods are tangible products  Services are intangible products  Need-a basic requirement for survival  Want- something you don’t have to have for survival but would like to have. Goods and Services

16.   Resources are in limited supply  May need to give up one thing to have another  Scarcity is when demand exceeds supply. Scarcity

17.   The amount of a good or service that producers are willing and able to produce Supply The more money that can be charged for each item… the more units the supplier is willing to produce.

18.   The amount or quantity of goods or services that consumers are willing and able to buy. Demand As the price continues to rise... the less units the consumer is willing to buy.

19.  Elastic vs Inelastic Demand Elastic Demand  A change in price creates a change in demand.  Example  Butter- there are lower priced substitutes and can be replaced Inelastic Demand  A change in price has very little effect on demand for products.  Examples:  Milk- no substitutes  Gasoline- no substitute

20.   Demand tends to be inelastic in these circumstances:  No acceptable substitutes are available, and customers need the product.  The price change is small and relative to buyer income, so if customers want the product, they will buy it.  The product is a necessity; customers need it.  Even when a product’s price is low people won’t keep buying it indefinitely due to diminishing marginal utility. Ex. Gasoline or medicine Inelastic demand

21.   Price alone doesn’t determine demand. Other factors due such as:  Income  Taste  How much they already own Diminishing Marginal Utility

22.  Supply & Demand  If something is in heavy demand but short in supply, prices will go up. The rise in price will reduce demand and expand supply.  If something is in heavy supply but in short demand, prices will go down. The fall in price will expand demand and contract supply  Prices tend to stabilize at the level where demand equals supply. Equilibrium

23.   Statistics produced by the federal government that help entrepreneurs understand the state of the economy and predict possible changes.  Examples:  Employment Rate  Consumer confidence  Gross Domestic Product- the total market value of goods and services produced by workers and capital within a nation during a given period. Economic Indicators

24.   The general pattern of expansion and contraction that the economy goes through. The Business Cycle Growth and Prosperity Recession Recovery or Depression

25.   Turns demand into supply  A principal source of venture capital  Provide Jobs  Change society  They are the catalysts that make economic progress happen. They create more wants to be satisfied. Entrepreneur Contributions