1.  The Free Enterprise System

2.  Traits of Private Enterprise

3. Objectives  Explain the characteristics of the free enterprise system.  Distinguish between price and nonprice competition.  Explain the theory of supply and demand.

4. The Main Idea  Countries in the global marketplace have market-oriented economic systems that feature the traits of the free enterprise system: competition, property ownership, risk, and the profit motive.

5. Basic Principles  Private enterprise is business ownership by ordinary people, not the government.  It is the basis of a market-oriented economy. Private enterprise is also known as free enterprise.

6. Basic Principles Basic Elements of Private Enterprise  Freedom to own property  Freedom to compete  Freedom to take risks  Freedom to make a profit

7. Basic Principles  People are encouraged to start and operate their own businesses as a part of the free enterprise system.  The marketplace determines prices through the interaction of supply and demand. If the supply of a product exceeds the demand, the price tends to drop. If demand is greater than supply, the price tends to go up. The government does not set prices or distribute goods and services.

8. Ownership  In the free enterprise system, people are free to own property, such as cars, computers, and homes. They can also own natural resources such as oil and land. You can buy anything you want as long as it is not prohibited by law. You can also do what you want with your property. You can give it away, lease it, sell it, or use it for yourself. If you engage in the free enterprise system, you try to make money from your property ownership.

9. Ownership: Business Ownership  There are many types of business. People who start and operate their own businesses are called entrepreneurs. Others support business by investing their money in parts or shares of a company. These shares of a business are called stocks and the investors are called stockholders.

10. Ownership: Intellectual Property Rights  Intellectual property rights are protected. That means that a product or idea a person creates or invents is legally protected from being copied.  Patents, trademarks, copyrights, and trade secrets are intellectual property rights.

11. Intellectual Property Rights  Patent the inventor owns the rights to the invention, which can be an item, or idea; exclusive rights for up to 20 years.  A trademark is a word, name, symbol, sound, or color that identifies a good or service. It cannot be used by anyone but the owner. Unlike a patent, a trademark can be renewed forever, if it is being used by a business.  A copyright involves anything that is authored by an individual, such as writing, music, and artwork. The author has exclusive rights to produce and sell the work and has a valid life of plus 70 years.

12. Competition  The free enterprise system encourages businesses to attract new customers and keep old ones. Other businesses try to take those same customers away. This struggle for customers is called competition.  Competition is an essential part of the free enterprise system. It is one of the ways the free enterprise system benefits consumers.  Competition forces businesses to produce better quality goods and services at reasonable prices.

13. Competition: Price and Nonprice Competition  Price competition focuses on the sale price of a product. The assumption is that, all other things being equal, consumers will buy the products that are lowest in price.  In nonprice competition, businesses choose to compete on the basis of factors that are not related to price. These factors include the quality of the products, service, financing, business location, and reputation.

14. Competition: Monopolies  A monopoly is exclusive control over a product or the means of producing it.  Monopolies are not permitted in a market oriented economic system because they prevent competition.  Business risk is the potential for loss or failure.

15. Profit  Profit is the money earned from conducting business after all costs and expenses have been paid.  Profit is the motivation for taking the risk of starting a business.

16. Supply  Supply is the amount of goods producers are willing to make and sell.  The law of supply is the economic rule that price and quantity supplied move in the same direction. This means that as prices rise for a good, the quantity supplied generally rises. As the price falls, the quantity supplied by sellers also falls.  Thus, suppliers want to supply a larger quantity of goods at higher prices so their businesses can be more profitable.

17. Demand  Demand refers to consumer willingness and ability to buy products.  The law of demand is the economic principle that price and demand move in opposite directions. As the price of a good increases, the quantity of the good demanded falls. As the price falls, demand for the good increases.

18. Surpluses, Shortages, & Equilibrium  Surpluses of goods occur when supply exceeds demand.  Shortages occur when demand exceeds supply, shortages of products occur.  When the amount of a product supplied is equal to the amount that is demanded, a state of equilibrium exists. When supply and demand are balanced, the result is that all parts of the economy benefit.

19.  Section 5.2 Business Opportunities

20. Objectives  Compare for-profit and nonprofit organizations.  Distinguish between public and private sectors.  List the major types of businesses in the organizational market.  List the major functions of business.

21. Types of Business  A business can be categorized by its size and scope, by its purpose, and by its place within the industry.

22. Size and Scope  Large versus Small Businesses  A small business is one that is operated by only one or a few individuals. It generally has fewer Than 100 employees. A large business is usually considered one that employs more than 1,000 people.  Domestic versus Global  A business that sells its products only in its own country is considered a domestic business.  A global business sells its products in more than one country.

23. Purpose  For-profit versus Nonprofit Organizations  A for-profit business seeks to make a profit from its operations. A nonprofit organization functions like a business but uses the money it makes to fund the cause identified in its charter. Nonprofit organizations generate revenue through gifts and donations.  Public versus Private  Public sector are government-financed agencies, such as the Environmental Protection Agency.  Private sector are businesses not associated with government agencies.

24. Industry and Markets  Wholesalers obtain goods from manufacturers and resell them to organizational users, other wholesalers, and retailer s. Wholesalers are also called distributors. Retailers buy goods from wholesalers or directly from manufacturers and resell them to the consumer. For the most part, retailers cater to the consumer market.

25. The Functions of Business

26. Production and Procurement  The process of creating, growing, manufacturing, or improving on goods and services is called production.  Procurement involves buying materials, products, and supplies needed to run a business.

27. Marketing  All activities from the time a product leaves the producer or manufacturer until it reaches the final consumer are considered marketing activities.  All types of business, regardless of size, scope, intended purpose, and products sold use marketing activities in their operations.  All related marketing activities support the buying and selling functions.

28. Management  Management is the process of achieving company goals by effective use of resources through planning, organizing, and controlling.  Management determines the corporate culture, ethics, and mission or vision for a firm.  Planning involves establishing company objectives and strategies to meet those objectives.  Organizing involves specific operations, such as scheduling employees, delegating responsibilities, and maintaining records.  Controlling has to do with overseeing and analyzing operating budgets to suggest the most cost-effective measures for a company to follow.

29. Finance and Accounting  Finance is the function of business that involves money management.  Accounting is the discipline that keeps track of a company’s financial situation.