CHAPTER
Entrepreneurship
& the Economy
Section 2.1 Importance of
Entrepreneurship
in the Economy
Section 2.2 Thinking Globally,
Acting Locally
SECTION
Importance of
Entrepreneurship
in the Economy
OBJECTIVES
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Describe an economic system
Identify different economic systems
Examine supply and demand relationships
Explore the role of competition in a market economy
Describe the profit motive
Learn about nonprofit organizations
Section 2.1: Importance of Entrepreneurship in the Economy
2
What Is an Economic System?
Economics is a social science concerned with how people satisfy
their demands for goods (things you can buy) and services
(things people do for a fee) when the supply of those goods and
services is limited.
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Economics is all about the flow of goods and services
between people.
When there are not enough goods and services to
meet the demand, the result is a scarcity of those
goods and services.
An economic system (or economy) is a method used
by a society to allocate goods and services among its
people and to cope with scarcity.
Section 2.1: Importance of Entrepreneurship in the Economy
3
Fundamental Questions
of Economics
What goods and services are produced?
 What quantity of goods and services are
produced?
 How are goods and services produced?
 For whom are goods and services
produced?
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Section 2.1: Importance of Entrepreneurship in the Economy
4
Types of Economic Systems
Two very different types of economic systems are often used to
compare how societies deal with the fundamental questions of
economics. These systems are the command economy and the
market economy.
In a command economy, the government owns or
manages the nation’s resources and businesses.
 In a market economy, suppliers produce whatever
goods and services they wish and set prices based on
what consumers are willing to pay.
 Another name for the market economy is the free
enterprise system.
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Section 2.1: Importance of Entrepreneurship in the Economy
5
Supply and Demand
Supply is the quantity of goods and services a business is willing
to sell at a specific price and a specific time.
A supply curve on a graph
shows the quantity of a
product or service a supplier
is willing to sell across a
range of prices over a
specified period of time.
Section 2.1: Importance of Entrepreneurship in the Economy
6
Demand Curve
Demand is the quantity of goods and services consumers are
willing to buy at a specific price and a specific time.
A demand curve on a
graph shows the quantity of
a product or service
consumers are willing to
buy across a range of prices
over a specified period of
time.
Section 2.1: Importance of Entrepreneurship in the Economy
7
Supply and Demand Curves
A supply and demand curve is a graph that includes both a
supply curve and a demand curve. It shows the relationship
between price and the quantity of a product or service that is
supplied and demanded.
Section 2.1: Importance of Entrepreneurship in the Economy
8
Competition in a
Market Economy
Competition is common in a market economy. People are free
to start and operate businesses that compete against each
other.
If a supplier lowers the price of a product or service,
consumers typically buy from that supplier rather than
from others.
 In a market economy, there is not only competition
between suppliers but also competition between
consumers. When consumers compete against each
other to buy a product, they push prices upward.
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Section 2.1: Importance of Entrepreneurship in the Economy
9
Profit Motive
A business makes a profit when the amount of money coming in
from sales is greater than the business’s expenses.
Profit is a business’s reward for successfully providing
goods and services that satisfy consumers’ demands.
 The profit motive is an incentive that encourages
entrepreneurs to take business risks in the hope of
making a profit.
 Entrepreneurs who consistently make a profit over time
can build their own wealth and ensure financial
independence.
 Many entrepreneurs use profit to benefit their existing
businesses, start new ones, or invest in the enterprises
of others.
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Section 2.1: Importance of Entrepreneurship in the Economy
10
Economics of One Unit
The economics of one unit is a calculation of the profit (or loss)
for each unit of sale made by a business. Calculate the
economics of one unit by subtracting the expenses for the unit of
sale from its selling price.
A unit of sale has a selling price to the consumer and an
expense for the entrepreneur. The economics of one unit
is the difference between the selling price and its expense.
Selling Price – Expense = Profit (or Loss)
Section 2.1: Importance of Entrepreneurship in the Economy
11
Economics of One Unit
If the equation on the previous slide results in a positive number,
you’ve made a profit. If it’s negative, you have a loss. A business
that cannot make a profit from one unit of sale will not ever
make a profit, no matter how many units it sells.
Another way to look at profit is as a percentage of the
selling price. This calculation tells an entrepreneur the
profit percentage based on sales. The formula per unit of
sale is:
(Profit/Selling Price) x 100 = Profit %
Section 2.1: Importance of Entrepreneurship in the Economy
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Economics of One Unit
An entrepreneur buys plain backpacks and decorates them at home with
hand-drawn art, stitching, buttons, and stickers before reselling them at the
flea market for $25 each.
Because each backpack is different, the entrepreneur uses an average
backpack as the unit of sale.
Section 2.1: Importance of Entrepreneurship in the Economy
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Nonprofit Organizations
A nonprofit organization operates solely to serve the good of
society. Nonprofits are not governmental organizations. They
operate much like for-profit businesses. Money comes into the
nonprofit from donations, government grants, or the sale of
goods and services to consumers.
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Nonprofit companies also have expenses. If the
money coming in is greater than the money going
out, a nonprofit company will have a surplus (profit).
Any profit a nonprofit earns must, by law, be used to
support the organization’s social mission. It cannot be
used for the financial gain of the people running the
nonprofit.
Section 2.1: Importance of Entrepreneurship in the Economy
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SECTION
Thinking Globally,
Acting Locally
OBJECTIVES
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Define the global economy
Identify factors that affect entrepreneurs in international
trade
Describe relationships between the global economy
and the local economy
Section 2.2: Thinking Globally, Acting Locally
15
The Global Economy
The global economy is the flow of goods and services around
the whole world.
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Exporting is the business activity in which goods or
services are sent from a country and sold to foreign
consumers.
Importing is the business activity in which goods and
services are brought into a country from foreign
suppliers.
Modern technology connects suppliers and consumers
around the world. The Internet, in particular, has made
international trade easier, faster, and more convenient
than ever before.
Section 2.2: Thinking Globally, Acting Locally
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Entrepreneurs and
International Trade
Entrepreneurs benefit from international trade by exporting
goods or services that are in demand in foreign countries and
importing foreign goods and materials to their own country.
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A trade barrier is a governmental restriction on
international trade.
The foreign exchange rate is the value of one
currency unit in relation to another.
Fair trade policies ensure that small producers in
developing nations earn sufficient profit on their
exported goods to improve their working,
environmental, and social conditions.
Section 2.2: Thinking Globally, Acting Locally
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The Local Economy
A local economy covers a limited area, such as a community or
town.
Entrepreneurs can benefit their local economies by:
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Purchasing materials and supplies from local merchants
Opening an account at a local bank, credit union, or other financial
institution
Joining a local business association, trade group, or civic
organization that supports local economic development
Paying local taxes that benefit schools and other public services
Investing money in local businesses
Donating money, time, or goods to local charities and
organizations
Hiring local employees
Supplying goods and services to local consumers
Section 2.2: Thinking Globally, Acting Locally
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