Chapter 3
ENTREPRENEURS IN A
MARKET ECONOMY
LESSONS
3.1 What Is an Economy?
3.2 The Concept of Cost
3.3 Government in a Market Economy
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Chapter 3
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Lesson 3.1
WHAT IS AN ECONOMY?
GOALS
 Describe market and command
economies.
 Define the concept of supply
and demand.
 Explain the effects of market
structure on price.
 Describe the functions of
business in a market economy.
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SCARCITY
Scarcity occurs when people’s needs
and wants are unlimited and the
resources to produce the goods and
services to meet those needs and wants
are limited.
Scarcity occurs in every economy.
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COMMAND ECONOMY
In a command economy, the
government determines what, how, and
for whom products and services are
produced.
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MARKET ECONOMY
In a market economy, individuals decide
what, how, and for whom goods and
services are produced.
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PRODUCTIVITY
The level of output that an industry or
company gets from each worker or each
unit of input into its products and
services is called productivity.
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SUPPLY
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Supply Curve
$50
Price
 Supply is how much of
a good or service a
producer is willing to
produce at different
prices.
 Suppliers are willing to
supply more of a
product or service at a
higher price.
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DEMAND
Demand Curve
$50
Price
 Demand is an
individual’s need or
desire for a product or
service at a given price.
 Individuals are willing to
consume more of a
product or service at a
lower price.
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30
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Quantity
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WHEN SUPPLY AND
DEMAND MEET
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Equilibrium Price
$50
Price
 The point at which the
supply and demand
curves meet is what is
known as the
equilibrium price and
quantity.
 This is the price at
which supply equals
demand.
Supply and
Demand Curves
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30
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10 20 30 40 50
Quantity
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Slide 10
MARKET STRUCTURE AND PRICES
When a company controls all of a
market, it has a monopoly.
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BUSINESS ACTIVITIES IN
A MARKET ECONOMY
Chapter 3
Slide 11
Production
Marketing
Product
Distribution
Price
Promotion
Management
Finance
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Lesson 3.2
THE CONCEPT OF COST
GOALS
Identify various types of
costs.
Discover how different types
of costs affect the prices
entrepreneurs charge.
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FIXED AND VARIABLE COSTS
Fixed costs are costs that must be paid
regardless of how much of a good or
service is produced.
Fixed costs are also called sunk costs.
Variable costs are costs that go up and
down depending on the quantity of the
good or service produced.
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MARGINAL BENEFIT AND
MARGINAL COST
Chapter 3
Slide 14
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.
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OPPORTUNITY COST
Opportunity cost is the cost of
choosing one opportunity or investment
over another.
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Lesson 3.3
GOVERNMENT IN
A MARKET ECONOMY
GOALS
Explain the government’s
effect on what is produced.
Recognize the different
roles the government plays
in a market economy.
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GOVERNMENT’S EFFECT ON
WHAT IS PRODUCED
Chapter 3
Slide 17
Purchases
Taxes
Subsidies
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ROLES OF THE GOVERNMENT
Regulator
Inspection
Licenses
Provider of public good
Provider of social programs
Redistributors of income
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