ENTREPRENEURS IN A MARKET ECONOMY

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ENTREPRENEURS IN A MARKET ECONOMY

• 3.1 What is an Economy
• 3.2 The Concept of Cost
• 3.3 Government in a Market Economy

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Lesson 3.1What 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.

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What is Economy?

• 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.

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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.

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SCARCTIY

• 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.

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COMMAND ECONOMY

• 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.

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COMMAND ECONOMY

• 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.

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SUPPLY AND DEMAND

• 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.

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SUPPLY AND DEMAND

• 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 individuals 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.

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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.

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Market Structure and Prices

• 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.

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Business Activities in a market Economy

• 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.

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Lesson 3.2The Concept of Cost

• Identify various types of costs.
• Discover how different types of costs affect the
  prices entrepreneurs charge.

GOALS
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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.

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Fixed and Variable Costs

• 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)

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Marginal Benefit and Marginal Cost

• 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).

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Opportunity Cost

• 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.

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Lesson 3.3Government In A Market Economy
GOALS

• Explain the governments effect on what is
  produced.
• Recognize the different roles the government
  plays in a market economy.

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Governments 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

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Governments Effect on What is Produced

• 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.

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The Government as a Regulator

• 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)

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The Government as a Provider of Public Good

• Public Good
• Is a good from which everyone receives benefits,
  not just the individual consuming the good.
• Vaccinations against communicable diseases
• The countrys armed forces
• Many entrepreneurs benefit from the fact that the
  government provides public goods.

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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.

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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.