Goods and Services
- Goods and services are the products of our economic system.
Services intangible (nonphysical) products that satisfy consumers’ wants and needs
- Entrepreneurs respond to consumers’ wants and needs with goods and services.
Need a basic requirement for survival
Factors of Production
There are four basic factors of production: land labor capital entrepreneurship
Factors of production the resources businesses use to produce the goods and services that people want
Scarcity
The principle of scarcity means giving up one thing in order to have something else.
Scarcity the difference between demand and supply; limited resources
Supply and Demand Theory
- In a free enterprise system, the price of a product is determined by demand.
Demand the quantity of goods or services that consumers are willing and able to buy at various prices
- The degree to which demand for a product is affected by its price is either governed by elastic demand or inelastic demand.
Inelastic demand situations in which a change in price has little or no effect on the demand for products
- Due to the law of diminishing marginal utility, even when a product’s price is low, people will not keep buying it indefinitely.
Diminishing marginal utility the effect or law that establishes that price alone does not determine demand, and that other factors, such as income, taste, and the amount of product already owned, play a role as well
- Supply is continually shifting in the marketplace.
Supply the amount of goods or services that producers are willing to provide
If something is in heavy demand, but in short supply, prices will go up.
If something is in heavy supply, but in short demand, prices will go down.
- Because supply and demand are continually shifting in the marketplace, the change creates surpluses, shortages, and equilibrium.
Equilibrium the point at which consumers buy all of a product that is supplied; at this point, there is neither a surplus nor a shortage
Economic Indicators and Business Cycles
- The federal government publishes statistics that help entrepreneurs understand the economy and predict possible changes.
The Gross Domestic Product is an example of an economic indicator.
Gross domestic product. the total market value of the goods and services produced by workers and capital within a nation during a given period
- There are four stages of the business cycle: growth, recession, depression, and recovery.
Business cycle the general pattern of expansion and contraction that the economy goes through
What Entrepreneurs Contribute
turn demand into supply
provide venture capital
create more wants
promote changes in society
provide jobs
Small Businesses and Entrepreneurial Ventures
The difference between small businesses and entrepreneurial ventures is that owners start small businesses to create jobs for themselves; while founders of entrepreneurial ventures have a desire to innovate, grow, and create new value.
1. Define the role of small business and entrepreneurship in the economy.
Entrepreneurs start by responding to society’s wants and end up changing society, thereby creating even more wants to be satisfied. As a result, entrepreneurs are the catalysts that make economic progress happen.
2. Compare and contrast economic systems.
Economic systems include a set of laws, institutions, and activities that guide economic decision making. There are several kinds: traditional, pure market, command, and mixed.
3. Explain how economics is about making choices.
Because resources are in limited supply, if the consumer wants one thing, he or she may have to give up something else.
4. Define the role of economic indicators and business cycles.
The federal government provides statistics (economic indicators) that help entrepreneurs understand the state of the economy and predict possible changes. Business cycles are general patterns of expansion and contraction that the economy goes through.
5. Describe what entrepreneurs contribute to the economy.
Entrepreneurs recognize consumer wants and see the economic opportunities in satisfying them. Entrepreneurs are a principal source of venture capital. Entrepreneurs provide jobs. In doing so, they provide for their own and others’ financial security. Entrepreneurs change society through the businesses they create and by responding to society’s wants and needs.
2. The Entrepreneurial Process
The Main Idea
The entrepreneurial start-up process includes:
the entrepreneur
the environment
the opportunity
start-up resources
the new venture organization
Content Vocabulary
enterprise zones opportunity start-up resources
discontinuance new venture organization business failure
The History of Entrepreneurship
Entrepreneurship has been a distinct feature of American culture since the American Revolution, but it was not until the 1980s that it became a popular topic.
1960s Large diversified companies
1970s Volatile economic climate; beginning of technology revolution
1980s More government regulation; smaller companies emerge
1990s No job security; move to service-based economy influenced by technology
The Entrepreneurial Start-Up Process
- The five components of the entrepreneurial start-up process work together to create a new business.
the entrepreneur
the environment
the opportunity
start-up resources
the new venture organization
- The entrepreneur is the driving force of the start-up process.
Entrepreneurs recognize opportunities and pull together the resources to exploit opportunities.
The Environment
Four Categories of Environmental Variables
1.The nature of the environment
2.The availability of resources
3.Ways to realize value
4.Incentives to create new businesses
- New businesses seek enterprise zones that provide incentives.
Enterprise zones specially designated areas of a community that provide tax benefits to new businesses locating there; communities may also provide grants for new product development
The Opportunity
A good opportunity can be turned into a business. An idea plus a market equals an opportunity.
Opportunity an idea that has commercial value
Start-Up Resources
When entrepreneurs are ready to start up a new business, they must use creative talent to put together the necessary start-up resources.
Start-up resources the capital, skilled labor, management expertise, legal and financial advice, facilities, equipment, and customers needed to start a business
The New Venture Organization
The fifth component of the start-up process is the execution of the new venture organization.
New venture organization the infrastructure or foundation that supports all the products, processes, and services of a new business
The Facts About Business Failure
A business failure
A business that disappears from the tax rolls may be a failure or a discontinuance.
Discontinuance a business that disappears from the tax rolls because it may be operating under a new name or because the owner has purposely discontinued in order to start a new business
How Entrepreneurs Can Succeed
1. Recognize opportunity
2. Test the opportunity in the marketplace
3. Assemble an expert team to execute the business concept
4. Plan and manage effectively
1. Discuss the five components of the entrepreneurial start-up process.
The entrepreneurial start-up process includes the entrepreneur, the environment, the opportunity, start-up resources, and the new venture organization.
2. Explain how to achieve business success.
The chances of a new business succeeding are good with effective planning and management. Entrepreneurs must learn how to recognize opportunity, test that opportunity in the marketplace, and assemble a team with the necessary expertise to execute the business concept.