1. What is Entrepreneurship?
Chapter 1

2. Entrepreneurship and the Economy
Section 1.1

3. Becoming an Entrepreneur
Entrepreneur – is an individual who undertakes the creation, organization, and ownership of an innovative business with potential for growth.
Accepts risk
Responsible for business ownership to earn profit
Create wealth
Achieve personal satisfaction
Venture – is a new business undertaking that involves risk.

4. Small Business and Entrepreneurship
Entrepreneurship – the process of recognizing or creating an opportunity, testing it in the market, and gathering the resources necessary to go into business.
Entrepreneurial – acting like an entrepreneur or having an entrepreneurial mindset- a way of thinking

5. Entrepreneurship Today
Global Marketing and the Internet have brought new resources, opportunities, markets, competitors, and ideas
Instant communication
Collaborate from a distance
Keep records more efficiently
Customers
demand for transactions and communication to take place quickly
Expect innovative products to come out often

6. Entrepreneurship Today
Businesses are pressured
to provide better service
Make more options available
Understand how entrepreneurs interact with customers - began with economic systems
Economics – study of how people choose to allocate scarce resources to fulfill their unlimited wants.

7. Economic Systems
Economic Systems – set of laws, institutions, and activities that guide economic decision making.
They attempt to answer
What goods & services should be produced?
What quantity of goods and services should be produced?
How should goods and services be produced?
For whom should goods and services be produced?

8. Economic Systems
Traditional E.S. – relies on farming and simple barter trade
Pure Market S. – based on supply and demand with little government control
Command E.S. – run by a strong centralized government
Focused on industrial goods

9. Economic Systems
Mixed E.S. – combines the principles of market and command economies.
United States
European Union

10. The Free Enterprise System
People have an important right to make economic choices:
What products to buy
Own private property
Start a business and compete with other businesses.
AKA Capitalism
AKA Market Economy
Primary incentive is profit
Revenue –Expenses = Profit
Also risk involved

11. The Free Enterprise System
Risk of failure serves as a positive
Encourages the production of quality products that truly meet the needs of consumers
Market Risk – lack of demand, changing customer needs
Product Risk – loss of customer interest, warranty problems
Financial Risk – lack of funding, rising costs

12. The role of competitioin
Basic characteristic of free enterprise system
Good for consumers because:
Provides choices
Forces companies to improve quality and become more efficient
Leads to surplus, which brings prices down

13. Market Structures
Refers to the nature and degree of competition among businesses operating in the same industry.
Affects market price
Perfect Competition – there are numerous buyers and sellers and many products that are very similar so they can be substitutes for consumers
Monopolistic – many sellers produce similar but differentiated products.
Substitution is not always possible
Sellers have some power to control price

14. Market Structures
Monopoly – one in which a particular commodity has only one seller who has control over supply and can exert nearly total control over prices.
Oligopoly – there are just a few competing firms

15. Supply & Demand
Interact to determine the price customers are willing to pay for the number of products producers are willing to make.
Heavy demand, but short supply, the price will go up. The rise in price will reduce demand and expand supply.
Plentiful supply, but demand is lacking, prices will go down. The decline in price will expand demand and contract supply
Prices stabilize when demand and supply are equal

16. Demand
The quantity of goods or services that consumers are willing and able to buy.
As price goes up, the quantity demanded goes down.
Elastic demand – refers to situations in which a change in price creates a change in demand
Inelastic demand – refers to situations in which a change in price has very little effect on demand for milk tends to be inelastic.
No acceptable substitute available, and customers need the product
Price change small relative to buyer income, customers will buy it if they want it
Product is a necessity; customers need it

17. demand
Diminishing Marginal Utility – people will not buy more than they can reasonably use.
Establishes that price alone does not determine demand
Other Factors: income, taste, amt. of product already owned

18. Supply Amt. of a good or service that producers are willing to provide
Producers are willing to supply products in greater amts. when prices are high
Surplus: more supplies than needed
Shortage: fewer supplies than needed
Equilibrium: the point at which consumers buy all of a product that is supplied

19. Business Cycles
Economic Indicators – statistics that help entrepreneurs understand the state of the economy and predict possible changes.
Employment rate
Consumer confidence
Gross Domestic Product (GDP) – the total market values of goods and services produces by a nation during a given period.

20. Business Cycles
The Federal Reserve – controls the economy and regulates the nation’s money supply
Tells banks what percentage of their money the can lend
Controls the interest rates
Buy and sell government securities to increase or decrease the money supply
Evaluate economic conditions
Adjust monetary policies

21. Business Cycles
Business Cycle – the periodic random pattern of expansion and contraction that the economy goes through.
A period of growth and prosperity (expansion) is usually followed by a contraction or slow down in growth.
When the GDP declines by more than 10 percent, it is called a depression
Inflation – an unhealthy jump in prices that slows consumer and business spending.
Decrease in spending, companies reduce their production levels, workers are laid off

22. Business Cycles Recession
The Fed will move to increase the supply of money
Fed will lowering interest rates to encourage people and businesses to borrow money and spend more
Avoid a recession when economic growth is too rapid, the Fed raises interest rates

23. What Entrepreneurs contribute
Are the mechanism by which the economy turns demand into supply
Create a market for venture capital
Venture capital – source of equity financing for small businesses with exceptional growth potential and experienced senior management.
Provide jobs
Change society
Respond to society’s wants and end up changing society