Chapter 1
Entrepreneurship and
The Economy
Four Steps to set Financial Goals
1.
2.
3.
4.
Realistic goals should be set
Goals should be specific
Goals should have a time frame
associated with them.
Your goals should help you decide
what type of action to take
Small Business and
Entrepreneurship
EntrepreneurIs a person who undertakes the creation,
organization, and ownership of a
business.
A VentureIs a new business undertaking that
involves risk.

Small Business and
Entrepreneurship
EntrepreneurshipIs the process of recognizing an
opportunity, testing it in the market, and
gathering resources necessary to go into
business.
EntrepreneurialMeans acting like an entrepreneur or
having an entrepreneurial mind-set.
Small Business and
Entrepreneurship
33% of all households are involved with a new
venture or small business often it’s a family
business.
90% of all businesses are small businesses
with fewer than 100 employees
62% of those are home-based businesses.
In today’s global marketplace, businesses feel
pressured to provide better service with more
options available to the consumer.

Small Business and
Entrepreneurship
EconomicsIs the study of how people choose to
allocate scarce resources to fulfill
unlimited wants.

Economic Systems
An economic system includes a set of
laws, institutions, and activities that
guide economic decisions.
THE FOUR FUDAMENTAL QUESTIONS
1. What goods should be manufactured?
2. What quantities should be produced?
3. How should the goods be produced?
4. For whom are they for?

The Free Enterprise System

In a free enterprise system, people
have an important right to make
economic choices:
-People choose what to buy
-People can choose to own Private
Property.
-People can choose to start a business
and compete with other businesses.
The Free Enterprise System

The free enterprise system is also called
Capitalism or a Market Economy.
The Free Enterprise System
There are three basic components to the
free enterprise system:
1. The Profit Motive- Making profit is a
primary incentive of free enterprise.
Profit is money left over after all
expenses of running a business have
been deducted from the income.
The Free Enterprise System
2. The Role of CompetitionCompetition between similar businesses
is one of the basic characteristics of
free enterprise. It provides choices,
improves quality, improves efficiency in
production, leads to surpluses, which in
turn reduces prices.
The Free Enterprise System
3. Market Structures- the term Market
Structure refers to the nature and
degree of competition among
businesses operating in the same
industry. Market structure does affect
market prices of goods.
The Free Enterprise System
There are four types of market structures:
1. Perfect Competition- is a market
structure in which there are numerous
buyers and sellers. The good or service
must be identical or very similar. There
is no difference in quality. Sellers can
enter the market very easily. Economic
efficiency drives this type of
Competition.
The Free Enterprise System
2. Monopolistic Competition- is a type
of market structure in which many
sellers produce similar, but
differentiated products. Through
differentiation sellers have some power
to control the price of their products. By
making its product slightly different, the
monopolistic competitor tries to
dominate a small portion of the market.
The Free Enterprise System
3. Monopoly- is a market structure in
which a particular commodity has only
one seller who has control over supply
and can exert nearly total control over
prices.
The Free Enterprise System
4. Oligopoly- is a market structure in
which there are just a few competing
firms. Example- Automobile companies.
The large companies can sell at lower
prices than the small companies, so
they do have some influence over
pricing.
The Free Enterprise System
The free enterprise system can not
operate without these
4 Factors Of Production:
Defined as the resources businesses
use to produce the goods and services
that people want.
1.
Land- in economic terms, land is all of the
natural resources upon and beneath the
earth’s surface. Land includes air, water,
trees, minerals, and crude oil.
The Free Enterprise System
2. Labor- the human effort put forth to
create goods and services.
3. Entrepreneurship- this factor
consists of the ideas and decisions of
the business owner, or entrepreneur.
He or she is the initiator, the one who
brings together the other factors of
production to create value in the
economy.
The Free Enterprise System
4. Capital- consists of the equipment,
factory, tools, and other goods needed
to produce a product. It also includes
money used to pay all of the expenses.
Basic Economic Concepts

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Goods and Services- Tangible vs Intangible
Needs and Wants- Basics for survival vs
Non Basics for survival.
Factors of Production- defined earlier
Scarcity- occurs when demand exceeds
supply.
Supply and Demand Theory
In a free enterprise system, the price of a
product is determined in the
marketplace. Sellers want to sell at the
highest possible price, while buyers
what to buy at the lowest possible
price. Buyers decide what they are
willing to pay for a product or service.
See Page 12.
Supply and Demand Theory
Supply and Demand interact together to
determine the price customers are
willing to pay for the number of
products manufacturers want to
produce.
Supply and Demand Theory
3 basic concepts of Supply &
Demand:
-When demand is heavy, and short in
supply the price goes up.
-When supply is heavy, and short in
demand the prices come down.
-Where demand equals supply, prices
stabilize.
Supply and Demand Theory
Demand definedIt is the quantity of goods and services that
consumers are willing and able to buy at any
given time.
According to the Law of Demand when price
goes up, the quantity demanded goes down.
In this way the market prices ration goods
and services among those who are willing
and able to pay for them. See figure 1.2 on
page 12.
Supply and Demand Theory

The degree to which demand for a
product is affected by its price is called
demand elasticity.

Products either have elastic or inelastic
demand.
Supply and Demand Theory

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Elastic demand refers to situations in which
a change in price creates a change in
demand. The demand for butter tends to be
elastic because there are lower priced
substitutes.
Inelastic demand- refers to situations in
which a change in price has very little effect
on the demand for a product. Milk has no
substitutes.
Supply and Demand Theory
Demand tends to be inelastic in these
circumstances:
1.
No acceptable substitutes
2.
The price change is small compared to
buyer income
3.
The product is a necessity
Supply and Demand Theory

Diminishing Marginal Utility definedEven when the price of a product is low,
people will not keep on buying it
indefinitely. Consumers will not buy more
than what they can use. This law
establishes that price alone does not
determine demand. Other factors include
income, taste, and the amount of product
already owned.
Supply and Demand Theory

Supply Defined- is the amount of
goods producers are willing to produce
at any given price. When prices are
high, producers want to manufacture
more. And when the price of a good
goes down, producers manufacture
less. See figure 1.3 on page 12.
Supply and Demand Theory
Surplus, Shortage and EquilibriumSee figure 1.4 on page 12. Any quantity
of product above where the supply and
demand curve meet is a surplus, and
any quantity below where the supply
and demand curves meet is a shortage.
Where the two meet is called the
equilibrium price.

Economic Indicators
and Business Cycles

The federal government publishes statistics
that help entrepreneurs understand the state
of the economy and predict possible changes.
These statistics are called Economic
Indicators.

Examples include employment rate, consumer
confidence, and gross domestic product
(GDP).
Economic Indicators
and Business Cycles

Gross Domestic Product DefinedIt is the total market values of goods
and services produced by workers and
capital within a nation during a given
period.
Economic Indicators
and Business Cycles

The Federal ReserveThe FED is a government agency that
controls the economy and regulates the
nation’s money supply. The FED can lend out
money, controls the interest rates, buys and
sells government securities to increase or
decrease money supply. It constantly
monitors the economy and makes changes
when necessary.
Economic Indicators
and Business Cycles

Business CycleIs the general pattern of expansion and
contraction that the economy goes
through. Business cycles mean that a
period of growth and prosperity is
usually followed by a recession.
The Entrepreneurial
Startup Process
1-The EntrepreneurHe or she the driving force of the start up
process.
The entrepreneur recognizes opportunity.
He or she pulls together resources to
start the business.
The Entrepreneurial
Startup Process
2-The EnvironmentThe nature of the environment, uncertain, fastchanging, stable, or highly competitive.
The availability of resources such as labor and
capital.
Ways to realize values, such as favorable taxes,
good markets and supportive gov’t policies.
Incentives to create new businesses.
The Entrepreneurial
Startup Process
3-The Opportunity
A good opportunity can be turned into a
business. It is an idea that has
commercial value.
The Entrepreneurial
Startup Process
4-Start-Up ResourcesThis includes capital, skilled labor,
management expertise, legal and
financial advice, facility, equipment, and
customers needed to start a business.
The Entrepreneurial
Startup Process
Enterprise Zones- are specially
designed areas of a community that
provide tax benefits to new businesses
locating there. They also provide grants
for new product development.
The Entrepreneurial
Startup Process
5-New Venture OrganizationIs the infrastructure of the business. It is
the foundation that supports all of the
products, processes, and services of the
new business.
Business Failure

Is defined as a business that has
stopped operating with a loss to
creditors. A business failure files a
chapter 7 bankruptcy.
Discontinuance

Is defined as a business that is
operating under a new name. It may
also be a business in which the owner
has purposely discontinued to start a
new one.
Entrepreneur Contributions

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Entrepreneurs turn demand into supply.
They are the primary source of venture
capital. They start with their own funds,
then seek investors.
They provide jobs.
They change society with new
innovative products. Computers etc.
They respond to people’s wants.