Download Unit 6 Running a Business

Unit 6: Running a Business in the Community
Test Date: February 10, 2017
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Vocabulary
free enterprise economic system – economic system where people have freedom as consumers
and producers
budget – a plan for managing a person’s income and expenses
income – money a person gets from working or selling goods and services
expense – the costs a persons has for goods and services they buy
profits – the money made by a business after paying all expenses
scarcity – a shortage of a resource
entrepreneur – a person who starts a business
Related Vocabulary
earning spending donating market saving
WAYS OF EARNING, SPENDING, SAVING AND DONATING MONEY
Earning – providing a paid service, completing a paid job, interest from saving
Saving – setting aside money, either in a savings account or piggy bank, earned or given for
future use
Spending – purchasing goods and services to satisfy wants and needs
Donating –giving money or goods and services with a monetary value to a charitable
organization
SCARCITY
Scarcity – items are scarce when the supply of a good or service does not satisfy the demand.
Scarcity exists because human wants for goods and services exceed the quantity of goods and
services that can be produced using all available resources.
HOW PROFITS ARE AFFECTED BY COST OF PRODUCTION AND SELLING PRICE
Cost of production – the cost of materials plus labor plus business expenses.
Selling price – the price at which consumers are willing to pay
Profit – the difference between the cost of production and the selling price is the profit
If the cost of production is very expensive, potentially the selling price needs to be high to make
a profit. And conversely if the cost of production is low the potential for profit at a higher selling
price is great
IMPACT OF SCARCITY ON PRODUCTION, DISTRIBUTION, AND CONSUMPTION OF
GOODS AND SERVICES
Scarcity and production – when the resources required to produce goods and services are
scarce, the product either cannot be made or production is limited.
Scarcity and distribution – if a good or service cannot be distributed to all who need or want it,
those able to pay the highest price for the good or service will be able to acquire it.
Scarcity and consumption – when the good or service is being consumed faster than it is
available, that drives up the cost.
HOW A FREE MARKET RELATES TO THE U.S. FREE ENTERPRISE SYSTEM
Free market – a market economy in which private producers supply goods and services to meet
consumer demand with little or no government interference in the market
U.S. free enterprise system – is characterized by the freedom to operate privately owned
businesses, the right to private property, a profit motive, competition, and consumer freedom of
choice.
HOW SUPPLY AND DEMAND AFFECT THE PRICE OF GOODS AND SERVICES
High supply, low demand results in lower prices in an effort to increase demand to sell the
supply of goods
Low supply, high demand results in higher prices until production of the good increases.
HOW CONSUMER COSTS ARE AFFECTED BY TAXES AND GOVERNMENT
REGULATIONS
Taxes are collected to pay for community services such as schools, roads, law
enforcement, fire protection, and emergency services.
Taxes are added to the costs of goods and services, increasing their overall cost to
consumers.
Government regulations set tax rates, set procedures requirements (building
inspections, safety requirements), which costs are included when determining
production costs, and setting prices consumers pay.
INDIVIDUALS, PAST AND PRESENT, WHO HAVE STARTED NEW BUSINESSES
Henry Ford (Ford Motor Company), Mary Kay Ash (Mary Kay Cosmetics), Wallace
Amos (Famous Amos Cookies), Milton Hershey (Hershey Chocolate Company), Sam
Walton (Walmart)