Exploring Marketing, Business, and Entrepreneurship
Unit 2.01 and 2.02
2.01 Economic and Economic Systems
I. Economics is the study of how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocation
of scarce resources.
A. Resources (natural, human, capital, and entrepreneurial) are limited—scarcity
B. Economic systems provide a way to allocate scarce resources to satisfy needs and wants
C. Four basic economic systems—traditional, free enterprise, command, mixed
II. Traditional Economy
A. Primarily found in rural, non-developed countries
B. Examples of traditional economy:
1. Amish
2. Indian Tribes
3. Vanuatu (southwestern Pacific Ocean island)
4. Pygmies of Congo
5. Eskimos
6. Belarus
C. Economic decisions are based on customs and centered around family
1. The way it has always been
2. Agrarian economy; hunting and gathering culture
3. Concerned with subsistence and basic survival
4. Men and women have specific roles
III. Free Enterprise System or Market Economy
A. No central coordinator but the economic system self-regulates itself based on the following:
1. Supply and demand of goods and services determines the price.
2. Prices are set by supply and demand and determine what is produced. Products, thus, generate competition within the
market.
3. No governmental intervention or other central coordinator.
B. Note: There is no true market economy. Most economic systems are a combination of market and command economies—
mixed economies (Part IV).
C. Advantage – Producers strive to create the best goods and services on the market to eliminate competition and become a
monopoly.
D. Disadvantage – An economic system like this could promote illegal business practices. This system could create a huge rift
between the wealthy and the poor.
IV. Command Economy
A. Government controls or dictates what is produced.
B. Also known as planned or managed economy
C. Command economies can vary from a strong command like China or Cuba to a moderate command like France or Sweden.
D. Advantage – Equal standard of living for everyone because the government oversees and distributes the necessities of life such
as healthcare, national security, social reforms and school systems.
E. Disadvantage –Fewer choices in the marketplace because government controls who enters. Less competition in the market,
therefore some items are unavailable.
V. Mixed Economy
A. Mix of command and market economy
B. Government takes care of people’s needs while the market takes care of their wants.
C. Most nations have a mixed economy – e.g. England, United States, Australia
D. A mix of private and public sectors
E. Advantages—private economic freedom; centralized economic planning; freedom to buy, sell and possess; government provided
services for public good; governmental safeguards
F. Disadvantages—taxes must be paid for government services, governmental restrictions (legislation and regulations)
2.02 Economics Supply & Demand, The Federal Reserve and Stock Market
Market Place
 A “place” where goods compete for recognition
 Free Market – Consumers determine the Demand for a product
 Entrepreneur – recognizes that Demand and creates a product to satisfy the need or want
Supply
 The quantity of a good the manufacturer or owner can produce at acceptable costs
 Manufacturer or owner has profit motive
 Example: Apple produces the Iphone at certain costs levels and supplies it to the marketplace.
Demand
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Consumers need or want for a product
Consumers pay a higher price in the beginning when demand is larger for a product
Competitors see the higher price and see an opportunity to enter the marketplace
Consumers have desire to get product at lowest possible price
As supply increases the marketplace forces the manufacturer/seller to lower pricing
 Example: Apple reduces the price or gave more incentives of the Iphone as competitors introduced other phones.
Supply and Demand Graphs
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A visual tool that reveals changes in a product’s supply and demand over time
Shows the relationship between the supply and demand of a product
Graph can help predict the product’s performance in the marketplace over time.
Do supply and demand meet?
Yes, the point is called the Equilibrium Point
The “Point” where price and quantity meet!
If the market price is too high, the price will be above the graph and equilibrium point and few people will purchase the good.
If the market price is too low, the price will be below the graph and equilibrium point and more people will purchase the good
BUT the manufacturer may lose money
Supply
Curve
Demand Curve
Equilibrium
Point/
Market
Price
United States Mixed Economy
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A combination of a free enterprise (or market) and a command economy.
Privately owned businesses and government both play important roles
The marketplace produces goods and services based on supply and demand
The government provides:
• defense
• education
Market Economy
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Private property ownership.
Freedom of enterprise and Choice
Motive of self-interest
Competition
System of markets and prices
The market addresses consumer wants
Advantages
• Individuals can own businesses and resources
• Individuals can buy and sell goods and services
• Competition in the market leads to greater choices
• Consumers play a great role in the economy
Disadvantage
• The critical role of the consumer in the market can create a tremendous divide between the poor and the wealthy
Limited Government/Command Economy
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The government helps protect people by being a body that monitors public safety through regulatory agencies such as:
• Food & Drug Administration (FDA)
• Occupational Safety and Health Administration (OSHA)
The government provides some services to take care of people’s needs
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Highways--roads and other transportation services
Schools and other public education services
Social Security
Medicare
Defense and public safety
Command Economy
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Advantages
• Consumers have some protection in the marketplace
• Essential services are provided for citizens
Disadvantages
• Citizens have to pay taxes so the government can provide services
• Some think there is too much government control in the marketplace
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United States’ Economy Summary
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Largest national economy in the world
A mixed economy
Corporations and other private firms make the majority of microeconomic decisions.
Government has a minimal role in the domestic economy.
Business firms in the U.S. have much less regulation than those in many other nations.
The Federal Reserve
Central Bank of the United States
• Regulates the money supply in the US economy
• Raises and lowers the discount interest rate
• Puts money into circulation
• Removes money from circulation
Impact of the Federal Reserve
• If the Federal Reserve raises the discount rate
• Consumer credit becomes more expensive
• Consumers buy fewer large goods—refrigerators, boats, etc.
• If the Federal reserve lowers the discount rate
• Consumer credit becomes less expensive
• Consumers buy more expensive goods—cars, washing machines, etc.
Stocks
What are stocks?
• Stocks are shares of ownership in corporations
• Shareholders have partial ownership in the corporation
• Corporations are permitted to sell stock to raise capital for the corporation
• Shareholders may receive dividend payments from the corporation