Entrepreneurs in a Market Economy

1. Entrepreneurs in a Market Economy Chapter #3

2. What is an Economy • Objectives • 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

3. Economic System • Is the organized way a national provides for the needs and wants of its people. • A nation chooses how to use its resources to produce and distribute goods and services. • You must always consider market structure, supply, demand and price when starting a business in order to succeed.

4. Can each of us have anything and everything we want? There’s not enough of the stuff we want to go around!

5. Scarcity Stuff we like to have is limited.

6. Economics, then, could be defined simply as… • Limited resources • Unlimited wants versus

7. Scarcity • The difference between wants and needs and available resource. Scarcity forces nations to make choices. • Different economies have different ways of choosing which needs are satisfied and how many resources are used to satisfy those needs.

8. How Does an Economy Work? • Nations answer these questions • 1.Which goods and services should be produced? • 2. How should the goods and services be produce? • 3. For whom should the goods and services be produced? Types of Economies • Traditional • Market • Command • Mixed

9. Command A system in which a country’s government makes economic decisions and decides what, when, and how much will be produced and distributed. What? – One person (dictator) or group (government) decides what they produce. How?- Since the government owns all mean of production is runs all business. It controls all employees opportunities Whom? – Government decided who will receive what items.

10. Market In a pure Market Economy these is no government involvement in economic decisions. Individuals and companies own the means of production and business compete for consumers. What? –Consumers decide what should be produced through the purchases that they make. How? – Businesses in a market economy decide how to produce goods and services. Whom? – In a market economy the people who have more money are able to buy more goods so they are motivated to work and invest.

11. When is a Economy Successful? • Increase production • Decrease unemployment • Maintain stable prices

12. Measurement to use • Productivity – is output per worker hour that is measured over a defined period of time. • Ways to increase • New equipment • Training of workers • Benefits to workers • Specialization or workers When production increases, a company makes more profit and can increase wages paid to employees.

13. Supply and Demand • Supply – is how much of a good or service a producer is willing to product at different prices.

14. Supply and Demand • Demand – is an individual’s need or desire for a product or service at a given price.

15. Supply and Demand • Equilibrium price and quantity – This is the price at which supply equals demand. • Shortages • Surpluses

16. Supply and Demand • The Blake Street Boppers have a supply of autographed baseball hats. They have decided to sell 50 hats at $30, 40 at $25, 30 at $22.50 and 15 at $17. Baseball fans are willing to have the money to buy 15 hats at $30, 20 at $25, 30 at $22.50 and 50 at $12. Build a supply and demand graph to determine the market clearing price and how many hats will be sold.

17. Market Structure and Prices • Monopoly – When a company controls all of a market.

18. Business Activities in a Market Economy - • Functions of business • Production – create or obtains products or services for sale. • Marketing – activities in order to make their products and services available to consumers. • Management – Setting goals, determining how goals can be met, and how to respond to the actions of competitors is the role of management. • Finance – plans and manages financial records and information related to businesses finances.

19. Fixed and Variable Costs • Fixed Costs-Costs that must be paid regardless of how much is produced. • Variable Costs – costs that go up or down depending on the quantity or goods or services produced.

20. Marginal Benefit & Marginal Costs • Marginal Benefits – measures the advantages of producing on additional unit of a good or service. • Marginal Costs – measures the disadvantage of producing one additional unit of a good or service.

21. Opportunity Costs • Is the cost of choosing one opportunity or investment over another.

22. Government in a Market Economy • Government affects what is produced by: • Purchases – Huge consumer of goods and services. • Taxes – sales tax and extra taxes on certain items. • Subsidies- government helps certain group (agricultural) • Enterprise Zones – Inner city neighborhoods.

23. Roles of the Government • Government as a Regulator • Government as a provider of Public Good • Government as a provider of Social Programs • Government as a redistributor of income

24. Government as a Regulator • Inspection – Inspect meat and poultry (USDA), Inspects factories and business (OSHA) • Licenses – Requiring license for some business (barbers, teachers, doctors)

25. Government as a Provider of Public Good. • Examples • Vaccinations • Armed Forces • Schools

26. Government as a Provider of Social Programs • Social Security • Welfare • Medical Research

27. Government as a Redistributor of Income • People with high income pay more taxes- • Low income get tax breaks and benefit from social programs Entrepreneurs pay more taxes as they earn more.