Chapter 2 Entrepreneurs in a Market Economy 2

Chapter 2 Entrepreneurs in a Market Economy 2. 1 Entrepreneurs Satisfy Needs and Wants 2. 2 How Economic Decisions are Made 2. 3 What Affects Price? Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Lesson 2. 1 Entrepreneurs Satisfy Needs and Wants Goals n Distinguish between needs and wants. n Describe the types of economic resources. n Describe the role of entrepreneurs in the U. S. economy. Chapter 2 Slide 2 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Terms n needs n wants n economic resources Chapter 2 Slide 3 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Is It a Need or a Want? n needs n things that are necessary for survival n wants n things you think you must have in order to be satisfied n add comfort and pleasure to your life Chapter 2 Slide 4 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n The role of business is to produce and distribute goods and services that people need and want. Chapter 2 Slide 5 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Needs n Maslow’s hierarchy of needs states that: n People’s basic psychological needs must be satisfied before they can focus on higher level needs. Chapter 2 Slide 6 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Chapter 2 Slide 7 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n needs n vary from individual to individual n vary by situation Chapter 2 Slide 8 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Wants n economic wants n a desire for material goods and services n are the basis of an economy n clothing n housing n hairstyling n noneconomic wants n nonmaterial things n sunshine n fresh air n happiness Chapter 2 Slide 9 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Needs and Wants are Unlimited n Needs and wants are infinite. n Satisfying one need or want may trigger a new need or want. Chapter 2 Slide 10 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

What is the difference between needs and wants? Chapter 2 Slide 11 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Economic Resources n economic resources n the means through which goods and services are produced n goods n products you can see and touch n services n activities that are consumed as they are produced Chapter 2 Slide 12 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Entrepreneurs use economic resources to create the goods and services consumers use. Chapter 2 Slide 13 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Factors of Production n natural resources n raw materials supplied by nature n human resources n the people who create goods and services n capital resources n the assets invested in the production of goods and services Chapter 2 Slide 14 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Limited Resources n Economic resources are limited. n Individuals, businesses, and countries compete for resources. n High demand for a limited resource drives up the price for the resource. Chapter 2 Slide 15 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

List the three types of economic resources and give an example of each. Chapter 2 Slide 16 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Role of Entrepreneurs in the U. S. Economy n Entrepreneurs are the backbone of the U. S. economy. n The development of small businesses helps to ensure a strong economic future. Chapter 2 Slide 17 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Supply and Demand n Entrepreneurs look for unmet needs to satisfy consumer needs and wants. Chapter 2 Slide 18 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Capital Investment and Job Creation n Entrepreneurs contribute to their local communities through: n investment n job creation Chapter 2 Slide 19 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Change Agents n The creation of new products can: n change the way people live n alter the way people conduct business n As entrepreneurs create more goods and services, the needs and wants of consumers increase. Chapter 2 Slide 20 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

What are some things entrepreneurs contribute to the U. S. economy? Chapter 2 Slide 21 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Lesson 2. 2 How Economic Decisions are Made Goals n Compare and contrast different types of economic systems. n Describe the characteristics of the U. S. economy. Chapter 2 Slide 22 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Explain how scarcity affects economic decisions. n Explain how business functions are used to satisfy consumers. Chapter 2 Slide 23 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Terms n capitalism n profit n economic decision making n scarcity n opportunity cost Chapter 2 Slide 24 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Economic Systems n Each economy must answer three basic questions regarding goods and services: n Which ones will be produced? n How will they be produced? n What needs and wants will they satisfy? Chapter 2 Slide 25 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n A variety of economic systems exist. n Command Economy n Production decisions are made by the government. n Few choices exist in the marketplace. n Market Economy n Production decisions are made by individuals and businesses. n Ample choices exist in the marketplace. n Entrepreneurship thrives in a market economy. Chapter 2 Slide 26 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Traditional Economy n n Production occurs the way it has always occurred. Most production is consumed. Left over production is sold or traded. Countries with traditional economies are not participating in the global economy. n Mixed Economy n These economies contain elements of command market economies. n Sometimes these economies occur because a country is shifting from either a command or traditional economy toward a market economy. Chapter 2 Slide 27 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n communism n a command economic system n government-led plans direct resources toward economic growth Chapter 2 Slide 28 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

How does the type of economy affect the way the basic economic questions are answered? Chapter 2 Slide 29 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

The U. S. Economic System n capitalism n the private ownership of resources by individuals rather than by the government n individual businesses and consumers make the majority of production decisions n also called free enterprise Chapter 2 Slide 30 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n The U. S. economic system of capitalism is based on four economic principles. n Private Property n You may own whatever you want as long as you operate within the law. n Freedom of Choice n Government intervention occurs only when individual decisions will bring harm to others. Chapter 2 Slide 31 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Profit n the difference between the revenues taken in by a business and the costs of operating the business n The opportunity to earn a profit is at the heart of the free-enterprise system. n Competition n the rivalry among businesses to sell their goods and services Chapter 2 Slide 32 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Describe the four basic principles of the U. S. economic system. Chapter 2 Slide 33 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Economic Choices n economic decision making n the process of choosing which needs and wants, among several, you will satisfy using the resources you have Chapter 2 Slide 34 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Scarcity n occurs when there are limited resources available to meet the unlimited needs and wants of consumers n Scarcity forces you to make decisions about tradeoffs. n Opportunity Cost n the value of the next-best alternative (the one you pass up) Chapter 2 Slide 35 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

What factors affect economic choices? Chapter 2 Slide 36 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Functions of Business n Production n A profit is earned by selling products or services to consumers. n The production function creates or obtains products or services. Chapter 2 Slide 37 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Marketing n The goal of marketing is to attract as many consumers as possible. n The marketing mix includes: n n Chapter 2 Slide 38 product distribution price promotion Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Management n The duties of management include: n n n Chapter 2 Slide 39 setting goals deciding on responses to competition solving problems managing employees evaluating business activities Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Finance n Financial duties include: n determining capital requirements n determining capital resources n managing the financial aspects of the business Chapter 2 Slide 40 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

What are the functions of business? Chapter 2 Slide 41 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Lesson 2. 3 What Affects Price? Goals n Explain how supply and demand interact to determine price. n Describe how costs of doing business affect the price of a good or service. n Explain the effect of different market structures on price. Chapter 2 Slide 42 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Terms n n n n supply demand equilibrium price and quantity fixed costs variable costs marginal benefit marginal cost Chapter 2 Slide 43 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

How Much Is Enough? n supply n how much of a good or service a producer is willing to produce at different prices n demand n an individual’s need or desire for a product or service at a given price Chapter 2 Slide 44 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Chapter 2 Slide 45 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Chapter 2 Slide 46 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n demand elasticity n when the demand of a product is affected by its price n elastic demand n when a change is price creates a change in demand n inelastic demand n when a change in price creates very little change in demand Chapter 2 Slide 47 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

When Supply and Demand Meet n equilibrium price and quantity n the price at which supply equals demand Chapter 2 Slide 48 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Chapter 2 Slide 49 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

What effect do supply and demand have on the price of a good or service? Chapter 2 Slide 50 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Costs of Doing Business n fixed costs (sunk costs) n costs that must be paid regardless of how much of a good or service is produced n variable costs n costs that fluctuate depending on the quantity of the good or service produced Chapter 2 Slide 51 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Fixed costs will be incurred regardless of the level of sales. n Businesses with many fixed costs have a higher risk than businesses with mostly variable costs. Chapter 2 Slide 52 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n marginal benefit n measures the advantages of producing one additional unit of a good or service n marginal cost n measures the disadvantages of producing one additional unit of a good or service Chapter 2 Slide 53 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

How do the costs of doing business affect prices? Chapter 2 Slide 54 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

Market Structure and Prices n Perfect Competition n Characteristics of perfect competition include: n n n Chapter 2 Slide 55 a very large number of businesses nearly identical products many well-informed buyers difficult to raise prices consumers have more control over the market businesses can leave or enter the market easily Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Monopolistic Competition n Characteristics of monopolistic competition include: n n n Chapter 2 Slide 56 a large number of independent businesses goods and services that are somewhat different each business has a small share of the market prices are determined competitively differentiating products is important businesses can easily enter or leave the market Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Oligopoly n Characteristics of an oligopoly include: n a small number of businesses that obtain the majority of total sales revenues n the goods are similar and are close substitutes n businesses can influence prices n it is hard to enter the market Chapter 2 Slide 57 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Monopoly n Characteristics of a monopoly include: n a single provider of a product or service n complete price control n if prices get to high, consumers may elect to do without the product or service n entry barriers exist that inhibit competition Chapter 2 Slide 58 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

How does the market structure affect the price of a good or service? Chapter 2 Slide 59 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

PERFORMANCE INDICATORS EVALUATED n Understand how a current issue affects the economy. n Communicate an opinion based upon facts and figures. Chapter 2 Slide 60 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

n Work as a team to persuade the audience to support a certain viewpoint. n Manage time effectively to research, outline, and present a viewpoint. n Demonstrate effective teamwork and align ideas into a persuasive argument. Chapter 2 Slide 61 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

THINK CRITICALLY 1. What are two advantages of allowing illegal immigrants to stay in the United States? 2. Why are businesses concerned about the government’s actions involving illegal immigrants from Mexico? Chapter 2 Slide 62 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western

3. Why are politicians conflicted by the illegal immigrant issue? 4. How can the United States ensure that illegal immigrants take the necessary steps to obtain legal citizenship? Chapter 2 Slide 63 Entrepreneurship: Ideas in Action © Cengage Learning/South-Western