Entrepreneurship and Economic Systems: Key Concepts and Market Dynamics

1. Chapter 1What is Entrepreneurship Entrepreneurship and the Economy Section 1

2. Small Business and Entrepreneurship • Entrepreneur: An individual who undertakes the creation, organization, and ownership of a business. • Venture: A new business undertaking that involves risk. • Entrepreneurship: The process of recognizing an opportunity, testing it in the market, and gathering resources necessary to go into business. • Entrepreneurial: Acting like an entrepreneur or having an entrepreneurial mind set.

3. Entrepreneurship Today • 1 in 3 households is involved with a new venture or small business. • 90% of all businesses are small businesses (fewer than 100 employees) • 62% of these are home based businesses

4. Economic Systems Economics: The study of how people choose to allocate scarce resources to fulfill their unlimited wants. • What goods and services should be produced? • What quantity of good and services should be produced? • How should good and services be produced? • For whom should goods and services be produced?

5. Free Enterprise System • Also called Capitalism, or a market economy • People have the right to make economic choices. • People can choose what products to buy. • People can choose to own private property. • People can choose to start a business and compete with other businesses.

6. The Profit Motive • Profit: Money that is left after all expenses of running a business have been deducted from the income. • Measures success • Risk of failure • Should encourage the production of quality products that meets consumers needs and wants.

7. The Role of Competition • Competition is a basic characteristic of a free enterprise system. • Businesses compete on price and non price factors. • What are some non price factors? • Stores can lower prices by increasing volume. • Entrepreneurs typically avoid competing on price factors.

8. Market Structures • The nature and degree of competition among businesses operating in the same industry. • Perfect Competition Numerous buyers and seller, nobody affects the price. • Monopolistic Competition Many sellers produce similar but differentiated products. Dominate small portion of market. • Monopoly One seller dominates and can control supply and therefore prices. • Oligopoly A few competing firms

9. Basic Economic Concepts • Goods and Services • Needs and Wants • Factors of Production: • Land • Labor • Capital-Equipment, factory, tools, and goods used to create products. Includes $$$ for expenses. • Entrepreneurship • Scarcity: Occurs when demand exceeds supply.

10. Supply and Demand • Sellers want the highest price possible. • Buyers want the lowest price possible. • Heavy demand and short supply prices goes up. • Heavy supply but little demand prices goes down. • Prices stabilize where demand equals supply.

11. Demand • The quantity of goods or services that consumers are willing and able to buy. • As price goes up the quantity demanded goes down. • Inverse Relationship

12. Demand Elasticity • Elastic Demand: Refers to situations in which a change in price creates a change in demand. • Depends on the number of substitutes • Inelastic Demand: A change in price has very little effect on demand for products. • No substitutes • Diminishing Marginal Utility: Price alone does not determine demand. Other factors income, taste, amount already owned plays a role as well.

13. Supply • The amount of a good or service that producers are willing to provide. • Producers are more willing to supply products when the price is high. • Direct Relationship

15. Surplus, Shortage, and Equilibrium • Supply and demand is continuously moving • Surplus: More supplies than needed. • Any price above the equilibrium price • Shortages: Fewer supplies than needed. • Any price below the equilibrium price. • Equilibrium: The point at which consumers buy all of a product that is supplied. There is neither a shortage or surplus.

16. Economic Indicators • Gross Domestic Product (GDP): The total market values of good and services produced by workers and capital within a nation during a given period. • The Federal Reserve (FED): A government agency that controls the economy and regulates the nation’s money supply. • Tells bank what percentage of money they can lend • Controls interest rates • Buys and sells government securities to increase or decrease the money supply.

17. The Business Cycle • The general pattern of expansion and contraction that the economy goes through.

18. Government Reactions to Business Cycle • Economy growing rapidly • Raise interest rates • Raise Taxes • Economy slipping into a recession • Increase the money supply • Lower interest rates • Lower Taxes

19. What Entrepreneurs Contribute • Recognize consumer wants • Provide Jobs • Change Society • Create new wants to be satisfied

20. Small Businesses & Entrepreneurial Ventures Small Businesses Entrepreneurial Ventures Innovate and grow the venture Create new value Expand to regional, national, or global level Examples: • Create jobs for themselves • Create lifestyles to meet personal goals • Examples:

21. Section 2 The Entrepreneurial Process Chapter 1 What is Entrepreneurship?

22. Famous Entrepreneurs • Pick an entrepreneur you respect. • Short bio. • Personal data • Business/product/service • Competitive advantage (what makes this product/service more desirable) • What characteristic(s) does this person possess that you feel contribute to their success?

23. History of Entrepreneurship • 1960s • Large Diversified Companies • Little competition from Japan or Europe • 1970s • High Interest Rates • International Competition • Technology Revolution starting • 1980s • More government regulation • Smaller entrepreneurial companies emerging

24. History of Entrepreneurship • 1990s • Less job security • Fewer benefits • Move to a service based economy • Rise of the Internet

25. The Entrepreneurial Start-Up Process • The Entrepreneur • The Environment • The Opportunity • Start-Up Resources • The New Venture Organization

26. The Entrepreneur • The driving force • Recognizes opportunity • Creates the company • Life Experiences • Risk Taker • Passion • Persistence

27. The Environment • The Nature of the Environment • Stable, changing, competitive, uncertain • The Availability of Resources • Skilled labor, start up capital, sources of assistance • Ways to Realize Value • Favorable taxes, good markets, governmental policies • Incentives to Create New Businesses • Enterprise Zones: Specially designated areas of a community that provide tax benefits to new businesses locating there.

28. The Opportunity • An idea that has commercial value. • But you also need a market • Idea + Market = Opportunity

29. Start-Up Resources • Capital • Skilled Labor • Management Expertise • Legal and Financial Advice • Facility • Equipment • Customers

30. The New Venture Organization • The infrastructure of the business. • Execution of the business concept • Create value to benefit: • Yourself • Employees • Customers • Economy

31. Business Failure • Business Failure: A business that has stopped operating with a loss to creditors. • Files Chapter 7 Bankruptcy • Loses money for creditors, investors, or anyone else who lent it money. • Discontinuance: A business that may be operating under a new name, or a business where the owner has purposely discontinued to start a new one. • This would not be considered a failure.