1 unit 1: going into business for yourself chapter 1 – what is entrepreneurship?

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Unit 1: Going Into Business For Yourself

Chapter 1 – What is Entrepreneurship?

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Key Terms To Know:

Business cycle Demand Diminishing marginal utility Economics Entrepreneur Entrepreneurship Entrepreneurial Equilibrium Free enterprise system Factors of production Goods

Gross Domestic Product Market structure Monopoly Need Oligopoly Profit Scarcity Services Supply Venture Want

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Key Concepts To Know

Small Business & Entrepreneurship Economic Systems Basic Economic Concepts Economic Indicators & Business Cycles What Entrepreneurs Contribute

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Statistics

1 in 3 households own their own family business

90% of businesses are small business having less than 100 employees

62% of small businesses are home-based

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Going into business for yourself

Considered an entrepreneur He/she accepts the risks & responsibilities of

owning the business He/she earns profits & gains personal

satisfaction Ventures are the new businesses being started Entrepreneurs have the 3 I’s: initiative;

innovation; imagination

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Why Be An Entrepreneur?

Generates employment Sees economic opportunities to satisfy our

demands for G&S Source of venture capital – getting money from

private investors Help give employees financial security Changing society (internet, computers) Catalysts to making economic progress happen

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The Start-Up Process

Skilled Entrepreneurs! Enterprise Zones – Communities give tax benefits/grants if you

open up a business there Start-Up Resources:

Capital Skilled Labor Management Expertise Legal & Financial Advice Facilities Equipment Customers!

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Basic Economic Concepts

Goods – tangible items purchased; sold by a merchandising business

Services – intangible (nonphysical) items; sold by a service business

Goods & Services will be abbreviated: G&S

Basic Economic Concepts

Needs – food, shelter, clothing (basic) Wants – would ‘like’ to have

Necessary wants – winter coat, snow bootsOptional wants – mink coat, UGG bootsPrivate wants – 1 person wants itPublic wants – “infrastructure” needs of

society

Basic Economic Concepts

Values – things you prize or think are important

Goals – your aims or objectives

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Basic Economic Concepts

Opportunity Costs – something given up because another choice is made; the 2nd option that wasn’t taken

Trade Off – cutting back on one option so that you can have some of another optionChoosing to box up some dinner so that you

can save room for dessert

Why are these important when opening up a business?? Now, think about what type of business

you may want to open up . . . Will it satisfy peoples’ wants? Or needs? Will you provide a service? Or sell goods? Base your business choice on what you value Base your business choice on what goals you

have

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4 Economic Questions Every Economic System Must Face: What G&S will be produced? What amount of G&S will be produced? How will the G&S be produced? Who will use/purchase the G&S?

Basic Economic Concepts

Resources Anything used to make or obtain needs or

wants Resources get pulled together to make a

business “happen”

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4 Factors of Production

AKA: Resources; Inputs to Production The resources needed/used to produce

G&S They are the basic elements used to

produce G&S Need these in order to start/run a business

4 Factors of Production Are:

1. Land (Natural Resources) – Earthly things Renewable Resources: can be re-grown Nonrenewable Resources: can only be used once (not re-

grown)

2. Labor (Human Resources) – employees; labor force (16 yrs old & over working or seeking work

3. Capital Resources – equipment, tools, buildings, cash; ‘owned’ property

4. Entrepreneurship – Management skill needed to start & operate a business; being able to manage all of these things! Review the 3 I’s of these risk takers

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Economic Systems

Traditional Economic System – bartering Pure Market System – little gov’t control Command Economic System – total gov’t

control Mixed Economies (between market &

command) – U.S. & European Union

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The Free Enterprise System

Most democratic nations have this People have rights to make decisions on:

What products they buy Owning private property Starting a business to compete with other

businesses Where voluntary exchange occurs

AKA: Capitalism; Market Economy

The Free Enterprise System

A Market Economy is when we have voluntary exchange

Markets are where the exchanges are happening

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Profit Motive & Competition

Making money is the primary incentive of a market economy/free enterprise

Competition helps consumers:Can get a better quality productCan get lower pricesCan get a wide variety of products

Competition forces companies to improve quality & become more efficient

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Supply & Demand

S&D help us understand prices of goods S&D interact to determine how much of a

product should be produced based on how much the consumer is demanding it

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Laws

Law of Supply – sellers want to sell (or supply) products to consumers at the highest possible price

Law of Demand – consumers want to purchase products at the lowest price possible

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Theories of Supply & Demand

If there is a heavy demand for a product but there is a short supply of it, prices will INCREASE. Thus, demand comes down, expanding supply

If there is a heavy supply for a product but there is a low demand for it, prices will DECREASE. Thus, demand starts to increase & lower supply

Prices tend to stabilize at the EQUILIBRIUM PRICE – where supply = demand

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Scarcity

It’s a problem that all societies must face Not enough products available for our

demand for them (demand > supply) Our resources are limited & our wants are

unlimited Must have OPPORTUNITY COSTS – give

up 1 thing in order to get something else

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3 Market Structures

Perfect Competition – hardly exist; when identical products exist; prices aren’t affected by any particular buyer/seller

Monopoly – differentiated products; tries to dominate a small portion of the market; 1 seller of a particular commodity

Oligopoly – several large companies sell the same product/commodity

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Economic Indicators

Gov’t looks at these to determine the overall health of our nation:

1. Employment Rate2. Consumer Confidence3. Gross Domestic Product (GDP) – the total market

VALUES of G&S produced in a nation in a given year

The Federal Reserve is involved in controlling the economy by regulating the money supply via interest rates!!

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Business Cycles

Recession – a period of decline, spending falls, demand for products falls, production of G&S slows down, layoffs occur

Depression – the lowest point a cycle can reach, high unemployment, money spent on needs is limited, production almost stops, businesses close down

Recovery – people start to find jobs & spend money on G&S

Prosperity – low unemployment rats, demand for G&S is at it’s highest point

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Business Cycles, cont.

INFLATION:Occurs when people are spending money &

are confident in the economy.Suppliers raise prices on G&SPrices are increasing faster than the increase

in people’s paychecks!Usually occurs during a recovery period

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Facts About Business Failures

Business Failure – Hurts creditors as the company files Chapter 7 bankruptcy & shuts down

Discontinuance – Still is operating, but under a different name; doesn’t hurt creditors as they “reorganize” themselves; could be a Chapter 11 or 13 bankruptcy

Circular Flow

Copy the diagram provided by the teacher:

THE END!