Transcript SHOULD YOU BECOME AN ENTREPRENEUR?

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
Chapter 3
Slide 2
Lesson 3.1
What is an Economy?
GOALS
 Describe market and command
economies.
 Define the concept of supply
and demand.
 Describe the functions of
business in a market economy.
What is Economy?
Chapter 3
Slide 3
Different countries have different economic
systems.
These different systems affect how an item is
produced, how it is distributed, and the demand
for the item.
An economic system even determines whether an
item is available at all.
You must always consider market structure,
including supply, demand, and price, when
starting a business in order to succeed.
Chapter 3
Slide 4
Market and Command Economies
All economies produce goods and
services.
 Goods are products, such as television sets,
compact discs, or greeting cards.
 Service businesses include them parks,
restaurants, and repair shops.
SCARCTIY
Chapter 3
Slide 5
 In every economy, there are limited
resources to produce goods and services.
However, individuals have unlimited needs
and wants.
 Scarcity is the basic economic problem that
individuals have unlimited needs and wants but
there are limited resources.
 The differences between economic systems is
the way the economy chooses to allocate the
goods and services available to the people who
need or want them.
COMMAND ECONOMY
Chapter 3
Slide 6
Command Economy
The government determines what, how
and for whom products and services are
produced. (There is little choice in goods and services)
Market Economy
Individuals decide what, how, and for
whom goods and services are produced.
There are many items available and that goods
remain on the market only as long as
individuals buy them.
COMMAND ECONOMY
Chapter 3
Slide 7
Productivity
The level of output that an industry or
company gets from each worker or
each unit of input into its products and
services.
Consumers benefit from competition
between companies because they will
get better products at cheaper prices.
SUPPLY AND DEMAND
Chapter 3
Slide 8
If a market is based on personal choice,
why does there always seem to be just
enough of everything?
In a market economy, individual consumers
make decisions about what to buy, and
businesses make decisions about what to
produce.
Consumers are motivated to buy goods and
services that they need or want.
Business owners are driven by the desire to
earn profits.
SUPPLY AND DEMAND
Chapter 3
Slide 9
To understand how this works, you need
to understand two important forces:
Supply – is how much of a good or service
a producer is willing to produce at different
prices.
 Supply Curve – suppliers are willing to supply more of a
product or service at a higher price.
Demand – is an individual’s need or desire
for a product or service at a given price.
 Demand Curve – individuals are willing to consume more of a
product or service at a lower price.
Chapter 3
Slide 10
When Supply and Demand Meet
 How do the forces of supply and demand work
together to determine price in a market
economy?
 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 – the point at which the supply
and demand curves intersect indicates the equilibrium price
and quantity.
 Consumers are willing to buy more of a good or service at
lower prices.
Market Structure and Prices
Chapter 3
Slide 11
 In a competitive market, many suppliers
compete for business and buyers shop
around for the best deal they can find.
 In this kind of market, prices are said to be
determined competitively.
 Not all markets are fully competitive.
 In some sectors of the economy, there is little or
no competition.
 AMTRAK is the only train line serving certain routes in
the United States.
 When a company controls all of the market, it has a
monopoly. The company is able to charge more than a
company that has to compete with other companies.
Business Activities in a market
Economy
Chapter 3
Slide 12
 In a market economy, a business is free to produce
and offer to consumers any legal product or service.
 A knowledge of business activities will help entrepreneurs
satisfy customers and make a profit. These activities or
functions of business include the following:
 Production – function creates or obtains products or services
for sale.
 Marketing – to attract as many customers as possible so that
the product succeeds in the market place. Marketing Mix
include: Product, Distribution, Price and Promotion.
 Management – great deal of time to be spent developing,
implementing, and evaluating plans and activities. Setting
goals, determining how goals can be met, and how to respond
to the actions of competitors.
 Finance – plans and manages financial records and information
related to businesses’ finances.
Chapter 3
Slide 13
Lesson 3.2
The Concept of Cost
GOALS
Identify various types of
costs.
Discover how different types
of costs affect the prices
entrepreneurs charge.
Chapter 3
Slide 14
The Concept of Cost
To determine how much profit they
are earning, entrepreneurs need to
know how much it costs to produce
their goods or services.
 To do so they must consider all the resources that
go into producing the good or service to determine
a price to charge.
Fixed and Variable Costs
Chapter 3
Slide 15
 Fixed Costs
 Costs that must be paid regardless of how much of a good
or service is produced. Fixed costs are also called sunk
costs. (a business with many fixed costs is a higher risk because the costs
must be paid even when there are no sales)
 Examples
 Monthly Rent
 Insurance Fees
 Interest on the loans
 Variable Costs
 Costs that go up and down depending on the quantity of the
good or service produced.
 Examples:
 Supplies
 Utilities
 Employees (if not salaried)
Marginal Benefit and Marginal Cost
Chapter 3
Slide 16
Entrepreneurs make business decisions
based on the concepts of marginal
benefit and marginal cost.
 Marginal benefit
Measures the advantages of producing one
additional unit of a good or service. (keeping the store
open an extra two hours is the additional unit).
 Marginal cost
Measures the disadvantages of producing one
additional unit of a good or service. ($100 sold in
those two hours is the marginal benefit).
Opportunity Cost
Chapter 3
Slide 17
 Another type of cost you should think about is
opportunity cost.
 Opportunity cost
 Is the cost of choosing one opportunity or investment
over another.
 Example:
 You want to start your own business. But you have
been offered a job that pays $28,000 a year. In
addition to the salary, you will receive two weeks’ paid
vacation, and your company will pay your medical
insurance. If you add in these benefits, which you
estimate are worth $3,000 a year, the total of $31,000
represents the opportunity cost of starting your own
business. It is the amount you could have earned by
choosing a different path.
Chapter 3
Slide 18
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.
Government’s Effect on What is
Produced
Although producers and consumers
make decisions about production and
consumption in a market economy, the
government is also often involved.
The government affects production in
three ways:
Purchases
Taxes
Subsidies
Chapter 3
Slide 19
Government’s Effect on What is
Produced
Chapter 3
Slide 20
PURCHASES
 The government purchases huge amounts as a consumer
and is the dominant consumer in some industries, such as
aerospace, and therefore affects supply and demand.
TAXES
 The government taxes some goods and services, which
sometimes raises prices enough to reduce demand and
producers’ revenues.
SUBSIDIES
 The government subsidies support supply and demand in
some industries and may benefit businesses in those areas.
The Government as a Regulator
Chapter 3
Slide 21
In a market economy the government
plays different roles. The government
may serve as a regulator, as a provider
of public good, as a provider of social
programs, and as a re-distributor of
income.
Inspection – To protect consumers, the
government regulates certain businesses.
Licenses – The government also regulates by
requiring some businesses to obtain licenses.
(examples: barbers, beauticians)
The Government as a Provider of
Public Good
Chapter 3
Slide 22
Public Good
Is a good from which everyone
receives benefits, not just the
individual consuming the good.
Vaccinations against communicable
diseases
The country’s armed forces
Many entrepreneurs benefit from the
fact that the government provides
public goods.
The Government as a provider of
Social Programs
The government provides a number of
social programs for people.
Social Security
Welfare
Medical Research
Aid for dependent children
The government further affects the
economy by redistributing income.
Chapter 3
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Chapter 3
Slide 24
Assignment
Page 73 – 75
Vocabulary Builder
#1-12 – Write the word and the definition
Review your knowledge
#13-22 – Answer in complete sentences. If
these are not answered in complete sentences
you will receive no credit.