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What Is Entrepreneurship? 1.1 Discuss the role of small business and entrepreneurship in the economy. Describe economic systems. Explain how economics is about making choices. Discuss the role of economic indicators and business cycles. Describe what entrepreneurs contribute to the economy. Section 1.1 Entrepreneurship and the Economy 1 What Is Entrepreneurship? Small Business and Entrepreneurship As an entrepreneur, you accept the risks and responsibilities of business ownership. Section 1.1 Entrepreneurship and the Economy entrepreneur an individual who undertakes the creation, organization, and ownership of a business 2 What Is Entrepreneurship? Small Business and Entrepreneurship Creating and running a business venture requires a variety of skills. Section 1.1 Entrepreneurship and the Economy venture - a new business undertaking that involves risk 3 What Is Entrepreneurship? Small Business and Entrepreneurship Starting a home-based business calls for entrepreneurship on the part of the owner. entrepreneurship acting like an entrepreneur or having an entrepreneurial mind-set Approximately one in three households is involved in an entrepreneurial enterprise. entrepreneurial the process of recognizing an opportunity, testing it in the market, and gathering resources necessary to go into business Section 1.1 Entrepreneurship and the Economy 4 What Is Entrepreneurship? Small Business and Entrepreneurship Knowledge of economics contributes to an understanding of how entrepreneurs and customers interact. economics the study of how people allocate scarce resources to fulfill their unlimited wants An economic system includes a set of laws, institutions, and activities that guide economic decision making. Section 1.1 Entrepreneurship and the Economy 5 Economic Systems ? What goods and services should be produced? ? What quantity of goods and services should be produced? All economic systems attempt to answer four basic questions. ? How should goods and services be produced? Section 1.1 Entrepreneurship and the Economy ? For whom should goods and services be produced? 6 What Is Entrepreneurship? The Free Enterprise System & The Profit Motive Most democratic nations have a free enterprise system. Making a profit is a primary incentive of free enterprise. profit - money that is left over after all expenses of running a business have been deducted from the income Section 1.1 Entrepreneurship and the Economy free enterprise system (also known as capitalism or market economy) an economic system in which people have the right to choose: what products to buy to own private property to choose to start a business and compete with other businesses 7 What Is Entrepreneurship? Competition The role of competition is a key element in a market economy. It helps to ensure lower prices, as well as higher quality, better service and reputation. market structure the nature and Perfect competition is a degree of competition market structure in which among businesses there are numerous operating in the same buyers and industry; market sellers and no structure affects single buyer or market price seller can affect price. 8 What Is Entrepreneurship? The Free Enterprise System The government may grant a temporary monopoly to an inventor. Section 1.1 Entrepreneurship and the Economy monopoly a market structure in which a particular commodity has only one seller 9 What Is Entrepreneurship? The Free Enterprise System Under antitrust laws, some forms of oligopoly are illegal. Section 1.1 Entrepreneurship and the Economy oligopoly a market structure in which there are just a few competing firms 10 What Is Entrepreneurship? Think-Pair-Share Turn to a partner and discuss the following question: What role does the profit motive and competition play in the free enterprise system? What is it’s impact on business? Random groups will be asked to share their answers. 3 Minutes 11 What Is Entrepreneurship? Goods and Services Goods and services are the products of our economic system. goods tangible (or physical) products of our economic system that satisfy consumers’ wants and needs services intangible (nonphysical) products that satisfy consumers’ wants and needs Section 1.1 Entrepreneurship and the Economy 12 What Is Entrepreneurship? Goods and Services Entrepreneurs respond to consumers’ wants and needs with goods and services. want something that you do not have to have for survival, but would like to have need a basic requirement for survival Section 1.1 Entrepreneurship and the Economy 13 What Is Entrepreneurship? Scarcity The principle of scarcity means giving up one thing in order to have something else. Section 1.1 Entrepreneurship and the Economy scarcity the difference between demand and supply; limited resources 14 What Is Entrepreneurship? Supply and Demand Theory In a free enterprise system, the price of a product is determined by demand. Section 1.1 Entrepreneurship and the Economy demand the quantity of goods or services that consumer are willing and able to buy at various prices 15 What Is Entrepreneurship? Supply and Demand Theory The degree to which demand for a product is affected by its price is either governed by elastic demand or inelastic demand. Section 1.1 Entrepreneurship and the Economy elastic demand situations in which a change in price creates a change in demand inelastic demand situations in which a change in price has little or no effect on demand for products 16 What Is Entrepreneurship? Supply and Demand Theory Due to the law of diminishing marginal utility, even when a product’s price is low, people will not keep buying it indefinitely. Section 1.1 Entrepreneurship and the Economy diminishing marginal utility the effect or law that establishes that price alone does not determine demand, and other factors, such as income, taste, and the amount of product already owned, play a role as well 17 What Is Entrepreneurship? Supply and Demand Theory supply the amount of Supply is continually shifting in the marketplace. goods or services that producers are willing to provide Supply and Demand Theory high demand + short supply = prices go up. heavy supply + short demand = prices go down. Section 1.1 Entrepreneurship and the Economy 18 What Is Entrepreneurship? Supply and Demand Theory Because supply and demand are continually shifting in the marketplace, the change creates surpluses, shortages, and equilibrium. Section 1.1 Entrepreneurship and the Economy equilibrium the point at which consumers buy all of a product that is supplied; at this point, there is neither a surplus nor a shortage 19 What Is Entrepreneurship? Economic Indicators and Business Cycles There are four stages of the business cycle: growth, recession, depression, and recovery. Section 1.1 Entrepreneurship and the Economy business cycle the general pattern of expansion and contraction that the economy goes through 20 What Is Entrepreneurship? Check Your Understanding 1. What are some ways that entrepreneurs affect the economy? 2. What are some examples of elastic and inelastic goods and how do they differ? 3. Explain the relationship between cost and profit and supply and demand Section 1.1 Entrepreneurship and the Economy 21 What Is Entrepreneurship? DECA Role Play Practice 1. Pick a partner. 2. Read the Role Play found on page 16. 3. Work as a team to create a presentation (focusing on the performance indicators). 4. Record your notes to be used in the presentation; will be collected for points. 5. Random group(s) will be called on to present. 22 What Is Entrepreneurship? 1.2 Discuss the five components of the entrepreneurial start-up process. Explain how to achieve business success. Section 1.2 The Entrepreneurial Process 23 What Is Entrepreneurship? An idea plus a market equals an opportunity. 1.2 The entrepreneurial start-up process includes: the entrepreneur the environment the opportunity start-up resources the organization Section 1.2 The Entrepreneurial Process 24 What Is Entrepreneurship? The Entrepreneur The five components of the entrepreneurial start-up process work together to create a new business. The entrepreneur is the driving force of the start-up process. Entrepreneurs recognize opportunities and pull together the resources to exploit opportunities. Section 1.2 The Entrepreneurial Process 25 The Environment The nature of the environment The availability of resources Four Categories of Environmental Variables Ways to realize value Section 1.2 The Entrepreneurial Process Incentives to create new businesses 26 What Is Entrepreneurship? The Environment New businesses seek enterprise zones that provide incentives. Section 1.2 The Entrepreneurial Process enterprise zones specially designated areas of a community that provide tax benefits to new businesses locating there; communities may also provide grants for new product development 27 What Is Entrepreneurship? Start-Up Resources When entrepreneurs are ready to start up a new business, they must use creative talent to put together the necessary start-up resources. start-up resources the capital, skilled labor, management expertise, legal and financial advice, facilities, equipment, and customers needed to start a business A good opportunity can be turned into a business. opportunity an idea that has commercial value Section 1.2 The Entrepreneurial Process 28 What Is Entrepreneurship? The Organization The fifth component of the start-up process is the execution of the new venture organization. Section 1.2 The Entrepreneurial Process new venture organization the infrastructure or foundation that supports all the products, processes, and services of a new business 29 What Is Entrepreneurship? The Facts About Business Failure Most new businesses fail - MYTH!! The truth is more will succeed than fail. 66% survive the first 2 years. A business failure files Chapter 7 bankruptcy. A business that disappears from the tax rolls may be a failure or a discontinuance. Section 1.2 The Entrepreneurial Process business failure a business that has stopped operating, with a loss to creditors, and one that no longer appears on the tax rolls discontinuance a business that disappears from the tax rolls because it may be operating under a new name or because the owner has purposely discontinued in order to start a new business 30 How Entrepreneurs Can Succeed 4. Plan and manage effectively 3. Assemble an expert team to execute the business concept 2. Test the opportunity in the marketplace 1. Recognize opportunity Section 1.2 The Entrepreneurial Process 31 What Is Entrepreneurship? Ch 1.2 Check Your Understanding 1. What are the five components of the process of new venture creation? 2. How does an enterprise zone encourage new business? 3. Why shouldn’t discontinuances be counted as business failure? Section 1.1 Entrepreneurship and the Economy 32