1. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western ChapterChapter Entrepreneurs in a Market Economy 2.1 Entrepreneurs Satisfy Needs & Wants 2.1 Entrepreneurs Satisfy Needs & Wants 2.2 How Economic Decisions are Made 2.2 How Economic Decisions are Made 2.3 What Affects Price? 2

2. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 2 Lesson 2.1 Entrepreneurs Satisfy Needs and Wants Goals Distinguish between needs and wants. Describe the types of economic resources. Describe the role of entrepreneurs in the U.S. economy.

3. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 3 Is It a Need or a Want? needs things that are necessary for survival food, basic clothing, shelter wants things you think you must have in order to be satisfied add comfort and pleasure to your life The role of business is to produce and distribute goods and services that people need and want.

4. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 4 Needs Maslow’s hierarchy of needs states that: People’s basic psychological needs must be satisfied before they can focus on higher level needs. needs vary from individual to individual vary by situation

5. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 5 2.1

6. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 6 Wants economic wants a desire for material goods and services are the basis of an economy clothing, housing, cars, hairstyling, medical services noneconomic wants a desire for nonmaterial things sunshine, fresh air, exercise, friendship, happiness

7. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 7 Needs and Wants are Unlimited Needs and wants are infinite. Satisfying one need or want often leads to a new need or want. You are only limited by what your mind can think of and what businesses make available for sale.

8. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 8 What is the difference between needs and wants? What are your needs? What are your wants? 2.1

9. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 9 Economic Resources economic resources the means through which goods and services are produced goods products you can see and touch; purchased services activities that are consumed as they are produced; must be provided for consumers

10. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 10 Factors of Production Natural Resources raw materials supplied by nature oil, minerals, rivers, lakes, oceans Human Resources the people who create goods and services Capital Resources assets invested in production of goods/services buildings, equipment, supplies, money needed to build factory, buy equipment, pay employees

11. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 11 Limited Resources Economic resources are limited. Individuals, businesses, and countries compete for resources. High demand for a limited resource drives up the price for the resource.

12. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 12 List the three types of economic resources and give an example of each.

13. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 13 Role of Entrepreneurs in the U.S. Economy Entrepreneurs are the backbone of the U.S. economy. The development of small businesses helps to ensure a strong economic future.

14. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 14 Supply and Demand Entrepreneurs look for unmet needs to satisfy consumer needs and wants. Entrepreneurs contribute to their local communities through: investments job creation Capital Investment and Job Creation

15. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 15 Change Agents The creation of new products can: change the way people live alter the way people conduct business As entrepreneurs create more goods and services, the needs and wants of consumers increase.

16. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 16 What are some things entrepreneurs contribute to the U.S. economy?

17. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 17 Lesson 2.2 How Economic Decisions are Made Goals Compare/Contrast different types of economic systems. Describe the characteristics of the U.S. economy. Explain how scarcity affects economic decisions. Explain how business functions are used to satisfy consumers.

18. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 18 Economic Systems Each economy must answer three basic questions regarding goods and services: Which ones will be produced? How will they be produced? What needs and wants will they satisfy?

19. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 19 Command Economy Command Economy Production decisions are made by the government. No reason to have more than one type of product. Few choices for consumers exist in the marketplace. Market Economy Market Economy Production decisions made by individuals/businesses. Many choices exist in the marketplace. Entrepreneurship thrives in a market economy. U.S. Economy = Market Economy 4 Types of Economic Systems 2.2

20. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 20 Traditional Economy Traditional Economy Production occurs the way it has always occurred. Most production is consumed. Leftovers sold/traded. Less developed; not participating in the global economy. Lack the formal structure; Limited capital resources. Mixed Economy Mixed Economy Contain elements of command and market economies. Occur when country is shifting from either a command or traditional economy toward a market economy. 4 Types of Economic Systems

21. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 21 How does the type of economy affect the way the basic economic questions are answered?

22. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 22 The U.S. Economic System U.S. System described as market economy. Capitalism: the private ownership of resources by individuals rather than by the government individual businesses and consumers make the majority of production decisions Also called - Free Enterprise - due to the freedom of businesses and individuals to make production and consumption decisions.

23. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 23 Private Property You may own whatever you want as long as you operate within the law. Consumers have control of private property. Freedom of Choice Consumers decide what to purchase and businesses decide what to produce. Government intervention occurs only when individual decisions will bring harm to others. U.S. Economic System 4 Economic Principles 2.2

24. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 24 Profit the difference between the revenues taken in by a business and the costs of operating the business the opportunity to earn a profit is at the heart of the free-enterprise system. Competition rivalry among businesses to sell their goods/services. competition encouraged to keep businesses working to improve their products/services. U.S. Economic System 4 Economic Principles

25. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 25 Describe the four basic principles of the U.S. economic system.

26. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 26 Economic Choices economic decision making the process of choosing which needs and wants, among several, you will satisfy using the resources you have

27. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 27 Scarcity Occurs when there are limited resources available to meet the unlimited needs and wants of consumers Forces you to make decisions about tradeoffs. Opportunity Cost the value of the next-best alternative (the one you pass up) Decision making which forces you to explore all of your alternatives and put value to those alternatives. 2 Economic Factors

28. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 28 What factors affect economic choices?

29. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 29 Functions of Business Market Economy – entrepreneurs are free to produce and offer to consumers any legal product/service. Four Functions of Business Production, Marketing, Management, Finance Each function is dependent on the others in order for the business to be effective.

30. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 30 4 Functions of Business Production A profit is earned by selling products or services to consumers. The production function creates or obtains products or services for sale.

31. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 31 Marketing Businesses in market economies need to complete marketing activities in order to make products available. These activities are known as the Marketing Mix: 4 P’s of Marketing: product, distribution (place), price, promotion The goal of marketing is to attract as many consumers as possible so the product succeeds. 4 Functions of Business

32. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 32 Management In a Market Economy - businesses spend a lot of time developing, implementing, and evaluating plans and activities. The duties of management include: setting goals deciding on responses to competition solving problems managing employees evaluating business activities 4 Functions of Business

33. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 33 Finance Financial duties include: determining amount of capital needed determining how to obtain capital resources planning and managing all of the financial aspects of the business 4 Functions of Business

34. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 34 What are the functions of business?

35. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 35 Lesson 2.3 What Affects Price? Goals Explain how supply and demand interact to determine price. Describe how costs of doing business affect the price of a good or service. Explain the effect of different market structures on price.

36. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 36 How Much Is Enough? supply how much of a good/service a producer is willing to produce at different prices Suppliers are willing to supply more of a product/service at a higher price. demand an individual’s need or desire for a product or service at a given price individuals are willing to consume more of a product/service at a lower price. 2.3

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38. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 38

39. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 39

40. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 40 When Supply & Demand Meet equilibrium price and quantity: the price at which supply equals demand Above equilibrium price: fewer people are interested in buying goods and services. Suppliers not able to sell as much, priced too high. Below equilibrium price: the price is too low for producer. Consumers willing to buy; Suppliers not willing to produce.

41. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 41 when demand of a product is affected by its price elastic demand when change is price creates change in demand inelastic demand when a change in price creates very little change in demand Demand Elasticity

42. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 42 Demand is usually inelastic when: There are no acceptable substitutions for a product that consumers need. The change in price is small in relation to the income of consumers, so consumers will continue to buy the product if they want it. The product is a basic need for consumers, rather than just a want. Inelastic Demand

43. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 43 What effect do supply and demand have on the price of a good or service?

44. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 44 Costs of Doing Business Entrepreneurs must know how much it costs to produce their goods/services. They must consider all the resources that go into producing the good/service to determine what price they should charge. Fixed and Variable Costs Marginal Benefit and Marginal Cost

45. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 45 Costs of Doing Business Every business has: fixed costs (a.k.a. sunk costs) costs that must be paid regardless of how much of a good or service is produced Rent, insurance, loan interest variable costs costs that fluctuate depending on the quantity of the good or service produced Supplies used to produce goods/services

46. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 46 Fixed costs will be incurred regardless of the level of sales. Variable costs will adjust with the level of sales the business has each month. Businesses with many fixed costs have a higher risk than businesses with mostly variable costs. Costs of Doing Business

47. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 47 Entrepreneur make decisions based on: marginal benefit measures the advantages of producing one additional unit of a good or service marginal cost measures the disadvantages of producing one additional unit of a good or service Marginal benefit must outweigh marginal cost. Bakery Example – Book Page 52 Costs of Doing Business

48. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 48 How do the costs of doing business affect prices?

49. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 49 Market Structure and Prices Market structure is determined by competition among businesses in the same industry. Criteria to distinguish different market structures: number/size of sellers and buyers in the market type of goods/services being traded barriers to entry into the market for sellers. Four Major Market Structure: Perfect Competition Monopolistic Competition Oligopoly Monopoly

50. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 50 Market Structure and Prices Perfect Competition Characteristics of perfect competition include: 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

51. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 51 Monopolistic Competition Characteristics of monopolistic competition include: 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 Market Structure and Prices

52. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 52 Oligopoly Characteristics of an oligopoly include: a small number of businesses that obtain the majority of total sales revenues the goods are similar and are close substitutes businesses can influence prices it is hard to enter the market Market Structure and Prices

53. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 53 Monopoly Characteristics of a monopoly include: a single provider of a product or service complete price control if prices get to high, consumers may elect to do without the product or service entry barriers exist that inhibit competition Market Structure and Prices

54. Entrepreneurship: Ideas in Action © Cengage Learning/South-Western Chapter 2 Slide 54 How does the market structure affect the price of a good or service?