1. Entrepreneurship

2. Entrepreneurship Today Knowledge of economics contributes to an understanding of how entrepreneurs and customers interact. economics the study of how people allocate scarce resources to fulfill their unlimited wants Section 1.1 Entrepreneurship and the Economy

3. Economic Systems An economic system includes a set of laws, institutions, and activities that guide economic decision making. Section 1.1 Entrepreneurship and the Economy

4. ?? ?? Economic Systems Section 1.1 Entrepreneurship and the Economy All economic systems attempt to answer four basic questions. 4 What goods and 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?

5. Free Market VS. Command Economy

6. The Free Enterprise System Making a profit is a primary incentive of free enterprise. profit money that is left over after all expenses of running a business have been deducted from the income Section 1.1 Entrepreneurship and the Economy

7. Free Market A free enterprise economy allows anyone to start a business (legally). Also known as capitalism

8. Command Economy In this economic system, the government sets prices and tells people where they can work and how much they can earn.

9. Free Market is more efficient than a command economy. In a free market, millions of entrepreneurs and consumers make millions of economic decisions every day. The result of these decisions is efficiency. ( how desired results are obtained with limited resources in an uncertain world.) Most world economies are a mix. Governments have some economic control (for example, the gov’t controls the Post Office in the US)

10. Basic Concepts Section 1.1 Entrepreneurship and the Economy basic concepts of economics 10 goods and servicesfactors of production scarcity supply and demand theory

11. Ownership Ownership is powerful You can open any business you create You can keep all the profits It is your choice You can sell “shares” You can donate

12. Price Communicates Information An economy is “efficient” when consumer needs are met with very little waste of resources or labor. Entrepreneurs who succeed at this are rewarded by profit.

13. Con’t In a free market, changes in Price send signals to entrepreneurs. A rise in Price will attract producers and lead to increased production If people stop buying, Price is probably too high If it sells out quickly and consumers want more, Price may be too low. Price relays information b/w the consumer and the entrepreneur

14. Laws of Supply and Demand generally determine the price of a product Supply (S): quantities available to consumers at various prices If everything else remains the same, businesses will supply more at higher prices than at lower ones As P increases, QS increases Demand (D):quantities that consumers would be willing to buy at various prices. If everything else remains the same, people will demand more at lower prices than higher ones As P increases, QD decreases

15. Supply and Demand Theory The degree to which demand for a product is affected by its price is either governed by elastic demand or inelastic demand. elastic demand situations in which a change in price creates a change in demand Section 1.1 Entrepreneurship and the Economy inelastic demand situations in which a change in price has little or no effect on demand for products

16. Supply and Demand Theory Due to the law of diminishing marginal utility, even when a product’s price is low, people will not keep buying it indefinitely. diminishing marginal utility the effect or law that establishes that price alone does not determine demand, and other factors, such as income, taste, and the amount of product already owned, play a role as well Section 1.1 Entrepreneurship and the Economy

17. Supply graph example

18. Demand graph example

19. Market behavior What happens to the price of air conditioners in the summer? fall? When are bathing suits most expensive? Why?

20. Equilibrium Also known as Market Clearing Price. Occurs where the D and S curves meet

21. Competition Keeps prices down and quality high The consumer benefits from competition. How? The opposite is called a monopoly

22. Summary Overall, use Supply and Demand as guides If D decreases, the market may be telling you to change your product or lower Price If Supply increases, prices may fall