1. Chapter 5 The Free Enterprise System

2. Chapter 5.1 Objectives
Explain the Characteristics of a Free Enterprise System
Distinguish between price and nonprice competition
Explain the theory of supply and demand

3. free enterprise system
The basis of this system is for people to have the freedom to:
own personal property
compete
take risks
make a profit
This system encourages individuals to start and operate their own business in a competitive system, without government involvement.

4. In general, how are prices determined in this system?
How do we classify the U.S. in regards to the free enterprise system?

5. Freedom of Ownership
As an individual, this means you can:
buy stuff
sell stuff
lease stuff
rent stuff
give stuff away
keep stuff and use it for yourself   
...as long as it is allowed by law!

6. Business Ownership
Entrepreneurs start and operate businesses they own. Other ways people can own businesses is by investing their money in them, but not working in the business. These people buy shares of stock.
A successful company's stock price rises because more people want to buy that stock. 
What is this another example of?

7. Intellectual Property Rights
patents                  trademarks                 copyrights   
Define each and explain how long each are good for.
How does someone else gain permission to use one of these?
What is the difference between these intellectual property rights and a trade secret?
patents-a government issues exclusive right to make, use, or sell an invention for up 20 years.
trademark-a brand name, brand mark, trade name, trade character, or a combination of these elements that is given legal protection by the federal government. It can renewed forever if used by a business.
copyright-the exclusive right to reproduce or sell a work authored by an individual, such as writings, music, and artwork. Usually valid for the life of the author PLUS 70 years.
To use any of these you must gain permission from the owner. A fee is usually paid as part of a licensing agreement.
The difference between these intellectual property rights and a trade secret is that a trade secret is not protected by a patent but rather is guarded by the company that possesses it.

8. Competition-the struggle for customers
How does competition benefit consumers?   
 2. How does competition increase our standard
of living?
What are TWO basic strategies businesses use to compete? 

9. price competition - focuses on the sale price of a product. 
What are some examples of companies that use this strategy?
nonprice competition - focuses competition on factors not related to price.
Can you think of examples for this strategy? 
As competition increases, many companies try to compete by using both strategies.

10. monopoly- exclusive control over a product or the means of producing it.
Why do free enterprise systems outlaw monopolies?
Discussion: Microsoft and utility companies

11. business risk- Define it!

12. business risk- the potential for loss or failure
risk vs. reward 
low risk, low reward....high risk, high reward
What are some examples of this?

13. money in the bank vs. money in the stock market
Money starting a business can payoff big time, OR a business can fail. 1/3 of every business in the U.S. fails after ONE year!!
Liability, natural disasters, increased competition
You want to succeed? Make new products!!
Not an easy thing...new product introductions are very costly AND as many as 85% of new products fail in the first year!!

14. profit - money earned from conducting business after all costs and expenses have been paid.
 (only 1-5% of sales for most businesses)
Profit is the "reward" in the risk vs. reward equation.
Profit is the motivation for those who start and operate businesses. That motivation is the key to satisfying customers and running a business efficiently.

15. DISCUSS
The economic costs of unprofitable firms:
worker layoffs
money losses for investors
stresses on government

16. DISCUSS
The economic benefit of successful firms:
higher employment, higher wages, better benefits, higher morale
investors gain money, which can spur reinvestment
increased consumer spending, increaded business opportunities
government receives more funds, and needs to provide less assistance

17. supply-the amount of goods producers are willing to make and sell
*the law of supply states that price and quantity supplied move in the same direction
demand-refers to the consumers' willingness and ability to buy products
*the law of demand states that price and quantity demanded move in the opposite direction
What is the relationship between supply and demand?

18. Go to Figure 5.1 on page 107

19. Supply and Demand-Discuss and provide examples
What is the term used when supply exceeds demand?
What is the term used when demand exceeds supply? 
What is the term used when demand is equal to supply?  

20. Chapter 5.2 Objectives Compare for-profit and nonprofit organizations
Distinguish between public and private sectors
List the major types of businesses in the industrial market

21. The Classification of Businesses
Size and Scope
Purpose
Industry and Markets

22. Size and Scope
Large vs. Small
More than 1000 employees
Less than 100 employees
    -about 95% are classified as small businesses
    - employ > 1/2 of the private sector workforce 

23. Size & Scope
Domestic vs. Global
Domestic business- Define it!
Global business- Define it

24. Purpose
For-profit vs. Nonprofit Organizations
For-profit business-Define it
Nonprofit organization-Define it

25. public sector-Define it....Give some examples
Purpose
Public vs. Private
public sector-Define it....Give some examples
-purchase 1/3 of all goods and services sold in the U.S. each year.
private sector-Define it...Give some examples

26. Businesses are classified according to:
Industry and Markets
Businesses are classified according to:
the industry they represent
the products they sell
the markets they target
NAICS-What does this stand for?
Industry-consists of a group of establishments primarily engaged in producing or handling the same product or group of products or in rendering the same services.

27. Businesses are classified according to:
Industry and Markets
Businesses are classified according to:
the industry they represent
the products they sell
the markets they target
Consumer, Industrial, and Service Markets
The relationship between consumer and industrial markets can best be explained by the concept of
derived demand.
What is derived demand?

28. Derived demand in the industrial market is based on, (or "derived from") the demand for consumer goods and services

29. Types of businesses in the industrial market
extractors (agriculture, mining, fishing, forestry)
construction (homes, commercial buildings)
manufacturing (goods produced and sold to others)
wholesalers-obtain goods from manufacturers and resell them to industrial users, other wholesalers, and retailers
retailers-buy goods from wholesalers or directly from manufacturers and resell them to the consumer
service related (intangible products-insurance, housekeeping, accounting, marketing, doctors, dentists, lawyers

30. The Functions of Business
All of these things functions must be looked at
as part of a SWOT analysis
production-the process of creating, expanding, manufacturing, or improving on goods and services
What are some different examples of production?

31. The Functions of Business
All of these things functions must be looked at
as part of a SWOT analysis
production-the process of creating, expanding, manufacturing, or improving on goods and services
What are some different examples of production?
Songwriter creates new music
Farmer grows crops
Ford manufactures new cars
Software developers write new programs

32. The Functions of Business
All of these things functions must be looked at
as part of a SWOT analysis
production-the process of creating, expanding, manufacturing, or improving on goods and services
What is looked at in evaluating this function?

33. The Functions of Business
production-the process of creating, expanding, manufacturing, or improving on goods and services
What is looked at in evaluating this function?
Innovation
Speed to market
Efficiency
Level of success with products

34. The Functions of Business
All of these things functions must be looked at
as part of a SWOT analysis
procurement-involves buying and reselling goods that have already been produced
SWOT Analysis, Wholesalers, and Retailers-
evaluating wholesalers and retailers on their merchandising ability.
What are the five "rights" of merchandising?

35. Marketing-all the activities that take place from the time a product leaves the manufacturer until it reaches the final consumer
The role of marketing activities-
research
pricing 
promoting
selling
Evaluate the four Ps in relation to your target market, company objectives, and sales performance.

36. management- the process of achieving company goals by effective use of resources through planning, organizing, and controlling
Explain:
planning
organizing
controlling

37. A SWOT Analysis of this function focuses
management- the process of achieving company goals by effective use of resources through planning, organizing, and controlling
A SWOT Analysis of this function focuses
on the evaluation of the personnel
who run the company.

38. Finance and Accounting
Finance-the function of business that involves money management 
Accounting-the discipline that keeps track of a company's financial situation
Important Documents to Analyze
Balance sheet
P & L 
Cash flow statement