1. Entrepreneurship & the Economy2
Entrepreneurship & the Economy
Section 2.1 Importance of
Entrepreneurship
in the Economy

2. Importance of Entrepreneurship in the Economy
2.1
Importance of Entrepreneurship in the Economy
Describe an economic system
Identify different economic systems
Examine supply and demand relationships
Explore the role of competition in a market economy
Describe the profit motive
Learn about nonprofit organizations

3. What Is an Economic System?
Economics is 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.
Economics is all about the flow of goods and services between people.
When there are not enough goods and services to meet the demand, the result is a scarcity of those goods and services.
An economic system (or economy) is a method used by a society to allocate goods and services among its people and to cope with scarcity.

4. Fundamental Questions of Economics
What goods and services are produced?
What quantity of goods and services are produced?
How are goods and services produced?
For whom are goods and services produced? 4

5. Types of Economic Systems
Two very different types of economic systems are often used to compare how societies deal with the fundamental questions of economics. These systems are the command economy and the market economy.
Command Economy
In a command economy, the government owns or manages the nation’s resources and businesses.
The government controls what suppliers produce, how much is produced, how it is produced, and how it is distributed.
Command economies are associated with political systems in which the government has strict control over social and economic affairs such as socialism and communism.

6. Types of Economic Systems
Market Economy
In a market economy (free enterprise or capitalism), suppliers produce whatever goods and services they wish and set prices based on what consumers are willing to pay.
This system is characterized by freedom of choice and voluntary exchange benefiting both suppliers and consumers
Individuals and businesses are free to own and trade goods and invest in a business.
The market economy is associated with the democratic political system.

7. Types of Economic Systems
Mixed Economy
In reality, no country has a pure command or pure market economy which results in a mixed economy

8. Supply and Demand
In a market economy, businesses want the consumer to pay the highest possible price for goods and services while consumers want to pay the least amount of money possible.
These opposing forces work together to make the market economy operate efficiently.

9. Supply and Demand
Supply is the quantity of goods and services a business is willing to sell at a specific price and a specific time.
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.

10. Demand Curve
Demand is the quantity of goods and services consumers are willing to buy at a specific price and a specific time.
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.

11. Supply and Demand Curves
A supply and demand curve is a graph that includes both a supply curve and a demand curve. It shows the relationship between price and the quantity of a product or service that is supplied and demanded.
Supply and demand are balanced 11

12. Competition in a Market Economy
Competition is common in a market economy. People are free to start and operate businesses that compete against each other.
If a supplier lowers the price of a product or service, consumers typically buy from that supplier rather than from others.
In a market economy, there is not only competition between suppliers but also competition between consumers. When consumers compete against each other to buy a product, they push prices upward. 12

13. Profit Motive
A business makes a profit when the amount of money coming in from sales is greater than the business’s expenses.
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. 13

14. 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) 14

15. (Profit/Selling Price) x 100 = Profit %
Economics of One Unit
If the equation on the previous slide results in a positive number, you’ve made a profit. If it’s negative, you have a loss. A business that cannot make a profit from one unit of sale will not ever make a profit, no matter how many units it sells.
Another 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 % 15

16. 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.

17. Nonprofit Organizations
A nonprofit organization operates solely to serve the good of society. Nonprofits are not governmental organizations. They operate much like for-profit businesses. Money comes into the nonprofit from donations, government grants, or the sale of goods and services to consumers.
Nonprofit companies also have expenses. If the money coming in is greater than the money going out, a nonprofit company will have a surplus (profit).
Any profit a nonprofit earns must, by law, be used to support the organization’s social mission. It cannot be used for the financial gain of the people running the nonprofit. 17