Introduction to Entrepreneurship How Economic Decisions are Made

Entrepreneurship Different economic systems exist throughout the world. Yet all economic systems must answer three basic questions: What goods and services will be produced? How will the goods and services be produced? For whom will the goods and services be produced? (whose needs and wants will be satisfied?)

Entrepreneurship Four basic types of Economic Systems COMMAND Economy MARKET Economy TRADITIONAL Economy MIXED Economy

Entrepreneurship COMMAND Economy The government determines what, how and for whom products and services are produced.

Entrepreneurship THRIVES in a MARKET economy. Individuals and businesses decide what, how and for whom goods and services are produced. Entrepreneurship THRIVES in a MARKET economy.

No existing market. Use what is made and trade what’s left over. Entrepreneurship TRADITIONAL Economy Goods and services are produced the way they always have been produced. No existing market. Use what is made and trade what’s left over.

Entrepreneurship MIXED Economy When elements of the command and market economies are combined Typically occurs when a country is moving away from a command economy

Entrepreneurship The U.S. Economic System MARKET Economy Capitalism Free Enterprise

U.S. economic system is based on four basic principles Entrepreneurship U.S. economic system is based on four basic principles Private Property Freedom of Choice Profit Competition

Entrepreneurship Private Property Freedom of Choice Freedom to own anything you want. You can own, use and dispose of things of value Freedom of Choice Freedom to make decisions independently and must accept the consequences of those decisions

Entrepreneurship Profit Competition The difference between revenues earned by a business and the costs of operating the business. No business is guaranteed a profit. Competition The rivalry among businesses to sell their goods and services. Consumers choose products and services based on the value they think they will receive.

Entrepreneurship Economic decision making Scarcity Opportunity Cost The process of choosing which needs and wants, among several, you will satisfy using the resources you have. TWO factors commonly enter into economic decision making. Scarcity Occurs when people’s wants and needs are unlimited, but the resources used to produce the goods and services to meet those wants and needs are limited. Opportunity Cost The value of the next-best alternative…the thing you pass up

Entrepreneurship 4 Functions of Business Production Marketing Management Finance

Entrepreneurship Production Creation or acquisition of products or services that you make available for sale Marketing The combination of product, distribution, price and promotion (marketing mix) which attracts customers to the goods and services you make available for sale

Entrepreneurship Management Setting goals, determining how goals can be met, deciding how to respond to the actions of competitors, solving problems, overseeing the work of employees and evaluating the activities of the business Finance Determining the amount of capital needed to operate the business, how that capital will be obtained and managing the financial records of the business