1. The Free Enterprise System
Chapter 5
The Free Enterprise System

2. 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

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

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

5. 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.

6. 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.

7. 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

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

9. 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

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

11. 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

12. 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.

13. 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

14. 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

15. 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.

16. 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

17. 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)

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

19. 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???

20. 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.

21. 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

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

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

24. 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.