Download Ch. 2 PPT - Mr. Ulmer

Chapter 2
Entrepreneurship
Mr. Ulmer
Entrepreneurs Satisfy
Needs and Wants

Needs – are things that you must have
in order to survive

Wants – are those things that you think
you must have in order to be satisfied

Needs and wants are unlimited
Needs

People have many needs where some
are basic needs, while others are
higher-level needs.

Abraham Maslow’s theory on the
Hierarchy of Needs
 Basic needs satisfied first; higher-level
needs will follow
Maslow’s Hierarchy of Needs
(to realize your potential)
(respect and recognition)
(friends, love, belonging)
(physical safety
& economic security)
(food, sleep, water, shelter, air, warmth)
Wants

Two different types of wants:
1) Economic wants
2) Noneconomic wants

Economic wants involve a desire for material
goods and services. They are the basis of an
economy.



Clothing, housing, cars, electronics = material goods
Hair styling and medical care = services
Noneconomic wants is the desire for
nonmaterial things such as sunshine, fresh air,
exercise, happiness.
Economic Resources

Economic Resources – are the means
through which goods and services are
produced.
 Goods are products you see and touch.
 Services are activities that are consumed
as they are produced.

Consumers satisfy needs and wants by
purchasing and consuming goods and
services.
Factors of Production

In order to create useful goods and
services, an entrepreneur may use
3 types of economic resources.

These resources are called the
factors of production:
 Natural resources
 Human resources
 Capital resources
Natural Resources

Natural Resources – raw materials
supplied by nature.

Oil, minerals, nutrients, rivers, lakes,
and oceans

The supply of many natural resources is
limited.
Human Resources

Human Resources – the people who
create goods and services.

People may work in the following areas:





Agriculture
Manufacturing
Distribution
Retail businesses
Entrepreneurs are a human resource!
Capital Resources

Capital Resources – The assets invested
in the production of goods and services.

Buildings, equipment, machinery, &
supplies.

Money is also considered a capital
resource.
Limited Resources

All economic resources have a limited supply.

Individuals, businesses, and countries
compete for access to and ownership of
economic resources.

Since there is a limited amount of natural
resources, there will be a limit of goods and
services to be produced.
Role of Entrepreneurs in the U.S.
Economy

Supply and Demand
 Supply goods and services to meet the
demands of customers.

Capital Investment & Job Creation
 Need money to finance their business
 Contributing to the local economy and
providing jobs

Change Agents
 Products and services that change the way
people live and conduct business.
Lesson 2.1 Terms Review

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Needs
Wants
Economic Resources
Goods
Services
Factors of Production
Natural Resources
Human Resources
Capital Resources
How are Economic Decisions
Made?

1.
2.
3.
All economies must answer 3 basic
questions…
What goods and services will be
produced?
How will the goods and services be
produced?
What needs and wants will be satisfied
with the goods and services produced?
Economic Systems

The type of economic system that a
country has will determine how these
3 questions are answered.

Different economies have different ways of
choosing:
 which goods and services are to be produced
 which needs are satisfied
 how many resources are used to satisfy needs
4 Economic Systems
 Command
 Market
Economy
 Traditional
 Mixed
Economy
Economy
Economy
Command Economy

The government determines what, how,
and for whom products and services are
produced.

Very little choice for consumers in what is
available due to government making the
decisions.

Individuals may not be able to satisfy
exactly what they want (example: jeans)
Market Economy

Individuals and businesses decide what,
how, and for whom goods and services are
produced.

About personal choice

Individual choice creates the market and
exists in how items are produced.

Entrepreneurship thrives in a market
economy
Traditional Economy

Goods and services are produced the way
they have always been produced.

Used in countries less developed and not
yet participating in the global economy.

Lack formal structure

Have limited capital resources to improve
their conditions
Mixed Economy

Exists when elements of the command
and market economies are combined.

Shifts away from command; heads
toward market
 Soviet Union (communism) over 70 years

Early 1990’s became 15 independent
states, resulting in a move toward
market economies
The U.S. Economic System

What type of economic system does the
United States have?
○ Market economy

Capitalism – the private ownership of
resources by individuals rather than by the
government.

Free Enterprise – freedom of businesses
and individuals to make production and
consumption decisions.
4 Basic Principles

Private Property
 You can own, use, or dispose of things of value
 Do anything you want and decide what to do as
long as you operate within the law

Freedom of Choice
 Make decisions independently and accept
consequences of those decisions
 Businesses and consumers have freedom of
choice
4 Basic Principles

Profit – the difference between the
revenues taken in by a business and the
costs of operating the business.
 One of the main reason entrepreneurs invest
resources and take risks

Competition - The rivalry among
businesses to sell their goods and
services.
 Forces businesses to improve products, keep
costs low, provide customer service, search for
new ideas.
Economic Choices

Economic decision making – is the
process of choosing which needs and
wants, among several, you will satisfy
using the resources you have.

Scarcity and opportunity cost influence
economic decision making
Scarcity

Occurs when people’s needs and wants
are unlimited, and the resources to
produce the goods/services to meet those
needs and wants are limited.

Examples: coal, oil, steel, money, food,
water, and cell phones.

Scarcity forces various economic decisions
to be made and to allocate resource
efficiently.
Opportunity Cost

The value of the next-best alternative;
the one you pass up.

Grandparents give you $400 after
graduating high school.
 Choice 1: Save the money for college*
 Choice 2: Purchase the latest iPhone
 Which one is the opportunity cost?
Lesson 2.2 Terms Review
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Command Economy
Market Economy
Traditional Economy
Mixed Economy
Capitalism
Free Enterprise
Profit
Economic decision making
Scarcity
Opportunity cost
What Affects Price?
Two groups: Consumers and Producers
 Together they determine quantities and
prices of goods and services to be
produced.

 Consumers make decisions about what to
buy
 Businesses make decisions about what to
produce
Supply and Demand

Supply – is how much of a good or
service a producer is willing to produce
at different prices.
 Example: Car Detailing Services
○ Willing to do 8 hrs/week @ $40 per car
○ Customers willing to pay @ $20 per car
○ Willing to work more if @ $60 per car
○ If price rises of the service, suppliers are
willing to provide more services.
Supply Curve
Supply and Demand

Demand – is an individual’s need or
desire for a product or service at a given
price.
 Example: Car Detailing Services
○ @ $40 you figure it is worth to get done once
a month.
○ If it fell to $20, you might be willing to have
your car detailed twice a month

Demand rises as price falls.
Demand Curve
Elasticity

When a change in price creates a
change in demand; elastic demand

When a change in price creates very
little change in demand; inelastic
demand
Factors of Inelasticity

Demand is usually inelastic when
 There are no acceptable substitutes for a
product consumers need
 Change in price is small in relation to the
income of the consumer
 The product is a basic need for consumers,
rather than just a want.
Equilibrium Price & Quantity

Equilibrium Price and Quantity – the
point at which the supply and demand
curves intersect.

This is the price at which supply equals
demand.
 Above eq. price = fewer people interested
 Below eq. price = more people interested
Equilibrium Price & Quantity
Costs of Doing Business

To determine how much profit they are
earning, entrepreneurs need to know
how much it costs to produce their
goods or services.

Must consider all resources that go into
producing the good/service to determine
a price to charge.
Fixed and Variable Costs

Every business has fixed and variable
costs.

Fixed costs – are costs that must be
paid regardless of how much of a good
or service is produced.
○ Monthly rent
○ Insurance fees
○ Interest on loans
○ Salaries
Fixed and Variable Costs

Variable costs – are costs that go up
and go down depending on the quantity
of the good or service produced.
○ Materials
○ Utilities (electric, water, heat, etc.)
○ Labor or delivery costs

A business with many fixed costs is a
higher risk than a business with mostly
variable costs. Why?
Marginal Benefit and Cost

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.
 Keeping the store open an extra hour…
Market Structure and Prices

Market structure is determined by the
nature and degree of competition among
businesses that operate in the same
industry.

How to distinguish which market
structure:
 Number and size of buyers and sellers
 Type of goods and services traded
 Barriers to entry into the market for sellers
Perfect Competition

Consists of a very large number of
businesses producing nearly identical
products and has many buyers
 Buyers well-informed of price, quality, and
availability. Consumers have many choices.
 More consumer control of the market
○ Gasoline suppliers
○ Producers of agricultural products; corn/wheat
Monopolistic Competition

Has a large number of independent
businesses that produce goods and
services that are somewhat different
 Each business has a very small portion of the
market share. Products not identical but similar.
 Many suppliers compete for the market; buyers
shop around for best deal.
○ Retail stores
○ Restaurants
Oligopoly

When a market is dominated by a small
number of businesses that gain the
majority of total sales revenue
 Businesses sell goods and services that are
close substitutes, and they have influence
over the price charged.
 Not easy to enter the industry
○ Automobile industry
○ Airline industry
Monopoly

Where there is only one provider of a
product or service.
 A company is able to charge whatever price
it wants, because consumers have no better
options.
 Opposite of a competitive market
○ Local water companies
○ Electric utility companies
Lesson 2.3 Terms Review
Supply
 Demand
 Equilibrium Price and Quantity
 Fixed Costs
 Variable Costs
 Marginal Benefit
 Marginal Cost
