Entrepreneurship
Entrepreneurship Today
Knowledge of economics
contributes to an
understanding of how
entrepreneurs and customers
interact.
Section 1.1 Entrepreneurship and the Economy
economics the study of
how people allocate scarce
resources to fulfill their
unlimited wants
Economic Systems
An economic system includes a set of laws, institutions,
and activities that guide economic decision making.
Section 1.1 Entrepreneurship and the Economy
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.
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How should goods and
services be produced?
Section 1.1 Entrepreneurship and the Economy
?
For whom should goods
and services be
produced?
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Free Market VS. Command
Economy
The Free Enterprise System
Making a profit is a primary
incentive of free enterprise.
Section 1.1 Entrepreneurship and the Economy
profit money that is left
over after all expenses of
running a business have
been deducted from the
income
Free Market
 A free enterprise
economy allows
anyone to start a
business (legally).
Also known as
capitalism
Command Economy
 In this economic
system, the
government sets
prices and tells
people where they
can work and how
much they can earn.
The result of these decisions is efficiency. ( how desired results are
obtained with limited resources in an uncertain world.)
Most world economies are a mix. Governments have some economic
control (for example, the gov’t controls the Post Office in the US)
Basic Concepts
goods and services
factors of production
basic concepts of economics
scarcity
Section 1.1 Entrepreneurship and the Economy
supply and demand
theory
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Ownership
 Ownership is
powerful
 You can open any
business you create
 You can keep all the
profits
 It is your choice
 You can sell “shares”
 You can donate
Price Communicates Information
 An economy is “efficient” when consumer needs are
met with very little waste of resources or labor.
Entrepreneurs who succeed at this are rewarded by
profit.
Con’t
 In a free market, changes in Price send signals to
entrepreneurs.
 A rise in Price will attract producers and lead to
increased production
 If people stop buying, Price is probably too high
 If it sells out quickly and consumers want more,
Price may be too low.
 Price relays information b/w the consumer and the
entrepreneur
Laws of Supply and Demand
generally determine the price of a product
 Supply (S): quantities
 Demand (D):quantities
available to consumers at
various prices
 If everything else
remains the same,
businesses will supply
more at higher prices
than at lower ones
 As P increases, QS
increases
that consumers would be
willing to buy at various
prices.
 If everything else remains
the same, people will
demand more at lower
prices than higher ones
 As P increases, QD
decreases
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
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
Supply graph example
Demand graph example
Market behavior
 What happens to the price of air conditioners in the
summer? fall?
 When are bathing suits most expensive? Why?
Equilibrium
Also known as Market Clearing Price.
Occurs where the D and S curves meet
Competition
 Keeps prices down
and quality high
 The consumer
benefits from
competition. How?
 The opposite is called
a monopoly
Summary
 Overall, use Supply and Demand as guides
 If D decreases, the market may be telling you to
change your product or lower Price
 If Supply increases, prices may fall