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ENTREPRENEURS IN A
MARKET ECONOMY
• Lesson 2.1 –
Entrepreneurs Satisfy Needs & Wants
• Lesson 2.2 –
How Economic Decisions Are Made
• Lesson 2.3 –
What Affects Price?
Lesson 2.1
Entrepreneurs Satisfy Needs and Wants
Is It a Need or a Want?
NEED – must have in order to survive… food, clothing, shelter
• Abraham Maslow – Hierarchy of Needs (5 areas)
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•
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Self-Actualization
Esteem
Social
Security
Physiological – (most basic), must be satisfied first before
WANT – things you think you must have to be satisfied, comfort
• Economic – involve a desire for Material goods/services.
• Basis of an economy; clothing, housing, cars, hair styling
• Noneconomic – desire for Nonmaterial things
• sunshine, fresh air, exercise, friendship, and happiness
Needs and Wants are UNLIMITED…
Economic Resources
• Means through which G/S are produced
Factors of Production – Economic Resourses
• Natural Resources – raw materials supplied by nature
• Human Resources – people who create the G/Svc
• Capital Resources – assets invested in production of G/S
LIMITED RESOURCES – all have a limited supply
• Individuals, Businesses, & Countries compete for access to & ownership of
ROLE of Entrepreneurs in the
U.S. Economy…
Entrepreneurs are the backbone of the U.S. economy.
ROLES:
1. SUPPLY and DEMAND
2. CAPITAL INVESTMENT and JOB CREATION,
3. CHANGE AGENTS
LESSON 2.2
HOW ECONOMIC DECISIONS
ARE MADE
Economic Systems – all answer 3 basic questions:
1. What G/S will be produced?
2. How will the G/S be produced?
3. What N/W will be satisfied with the G/S produced?
ECONOMIC SYSTEMS:
• COMMAND Economy – gov’t
• MARKET Economy – individuals/businesses
• TRADITIONAL Economy – simple, tradition, less developed
• MIXED Economy – Command & Market mixed.
The U.S. ECONOMIC SYSTEM
• Best described as a Market Economy
Based on 4 Basic Principles:
1. PRIVATE PROPERTY
2. FREEDOM OF CHOICE
3. PROFIT
4. COMPETITION
ECONOMIC CHOICES
Economic Decision Making – process of choosing
which N/W you will satisfy using resources you have.
2 Factors commonly enter into Econ. Decision Mkg
1. SCARCITY – occurs when N/W are unlimited &
resources for G/S are limited.
•
•
Affects what’s Produced, &
How much it Costs
2. OPPORTUNITY COST – value of the next best
alternative (the one you passed on)
FUNCTIONS OF BUSINESS
(Business Activities)
Knowledge of these will help satisfy customers & make profit.
• PRODUCTION –
• creates and obtains p/s for sale
• MARKETING –
• marketing activities – Marketing Mix ,PPDP
• MANAGEMENT –
• develop, implement, evaluate, solve problems
• FINANCE –
• determine capital needed, how to obtain it, &
• Involves planning & managing financial records
LESSON 2.3
WHAT AFFECTS PRICE?
HOW MUCH IS ENOUGH?
Consumers & producers determine quantities & prices of G/S produced
SUPPLY and DEMAND
Supply – Supply Curve
Demand – Demand Curve:
• Demand Elasticity –
• Inelastic Demand –
When Supply and Demand MEET…
• Equilibrium Price and Quantity – SUPPLY = DEMAND
SUPPLY – SUPPLY CURVE
Supply – How much of a G/S a Producer/Supplier
is willing to Produce/Supply at Different Prices.
• As the Price INCREASES, Suppliers/Producers are
willing to Provide MORE.
$
Quantity
DEMAND – DEMAND CURVE
Demand – individuals need/desire for a
product/service at a given price.
• As Price DECREASES, we Purchase MORE.
$
Quantity
Demand Elasticity – demand Is Affected by
Price.
Inelastic Demand – change in price creates Little
change in demand.
EQUILIBRIUM PRICE & QUANTITY
When SUPPLY and DEMAND Meet.
PRICE where SUPPLY = DEMAND, ideal price & quantity
$
Equilibrium Price & Quantity
Quantity
• If priced Above EP&Q, Price is too high,
• If priced Below EP&Q, Price is too low
COSTS of Doing Business
• FIXED Costs – costs that must be paid regardless of
how much is produced…
• VARIABLE Costs – costs that go Up/Down.
Depends on quantity produced…
Which is a Higher Risk?
• Marginal BENEFIT – measures the Advantages of
producing 1 additional unit of…
• Marginal COST – measures the Disadvantages of
producing 1 additional unit of…
Is Benefit > Cost?
MARKET STRUCTURE and PRICES
Market structure is determined by the nature and degree of
competition among businesses that operate in the same industry.
Each market structure has an effect on the prices businesses can
charge for their products or services.
PERFECT – Large # of businesses, Identical products,
Many buyers, Price is deciding Factor, Ex: Gas
MONOPOLISTIC – Large # of Independent businesses,
Products Somewhat Different, EX: Retail/Restaurant
OLIGOPOLY – Small # of businesses,
has Majority of total sales revenue, Ex:
Auto, Airline
MONOPOLY – Only 1 provider, charge whatever,
Ex: water, electric, cable