ENTREPRENEURIAL MIND

Business and the Market Place

Introduces the student of the world of business. It provides an opportunity for students to develop an understanding of
how both our needs and wants and our behavior as consumers impact the marketplace with respect to supply, demand,
competition and pricing.

Unit Outcomes

 The students will be expected to demonstrate an understanding of essential economic concepts in business.
 The students will be expected to demonstrate an understanding of how a business function.
 The students will be expected to demonstrate an understanding of factors that affect the success of a business.
There can be few assumptions in terms of student’s formal prior knowledge in relation to business and economics. It is
likely that many students will have significant misinformation in relation to business and economics as a whole.

Inquiry and Analysis should include:

- Make Comparisons
- Identify Cause and Consequence
- Consider Perspective
- Make Value Judgements

Enduring Understanding
By the completion of this section students should understand that economics significantly affects our lives.

Terms in Supply and Demand

Background and Straightforward concepts:
1. Free Market 8. Complementary Goods
2. Competition 9. Substitute Goods
3. Equilibrium 10. Short Run
4. Market Price 11. Long Run
5. Ceteris Paribus 12. Inferior Goods
6. Law of Demand 13. Normal Goods
7. Law of Supply

Demand:
1. Demand
2. Quantity Demanded
3. Demand Curve
4. Demand Schedule
Supply:
1. Supply
2. Quantity Supplied
3. Supply Curve
4. Supply Schedule
Elasticity:
1. Elasticity
2. Price Elasticity of Supply
3. Price Elasticity of Demand
4. Perfectly Elastic Curve
5. Perfectly Inelastic Curve
6. Unit Elastic
5. Diminishing Marginal Utility
6. Income Effect
7. Substitution Effect
8. Determines of Demand
5. Determinants of Supply
6. Tax
7. Subsidy
7. Determinants of Elasticity 13. Supply Elasticity in Long Run
8. Total Revenue Test 14. Market Period
9. Price – Elasticity Coefficient
10. Cross Elasticity of Demand
11. Income Elasticity of Demand
12. Supply Elasticity in Long Run
Price Ceilings and Price Floors:
1. Disequilibrium 5. Deadweight Loss
2. Price Ceiling 6. Price Floor
3. Shortage 7. Surplus
4. Black Market

Consumer and Producer Surplus:

1. Consumer Surplus: the difference between price that consumers would have paid and the market price.
2. Producer Surplus: the profit that producers make, by selling at market price, above the minimum they would
sell the product for Demand.
Governing concept: As prices go up, consumers will demand less.
**The demand curve curves down!**

The Difference between “Quantity Demanded” and “Demand”

What is Demand (D)?
- Demand is customers desire for goods or services
- The curve representing demand is always down-sloping.
What is Quantity Demanded?
- Quantity Demanded is the quantity of a good or service that consumers are willing and able to buy at a given
price in a given time period.
- Quantity Demanded is NOT the same as “Demand”!

Why Does the Demand Curve Slope Downward?

1. DIMINISHING MARGINAL UTILITY
- With each additional unit of utility consumed or added, marginal utility (the change in utility) decreases.
2. INCOME EFFECT
- A decrease in price for a good creates the effect of increasing income or increasing purchasing power for the
consumer thereby increasing demand for the food.
3. SUBSTITUTION EFFECT
- An increase in price for Good A causes the consumer to seek a cheaper alternative (Good B), thereby decreasing
demand for Good A and Increasing demand for Good B, which is the substitute of Good A.
Supply
Governing concept: As price goes up, producers will sell more.
**The supply curve curves up to the sky!**
Variables that Affect Supply/Determinants of Supply (R.O.T.T.E.N.)
Resource Costs
- If resource costs increase, supply will decrease
- If resource costs decrease, supply will increase
Other Prices
- If the price of a substitute good increases, supply will decrease
- If the price of a substitute good decreases, supply will increase
** the supplier will always chase the higher price!**
Taxes and Subsidies
- If a tax is levied, supply will decrease
- If a subsidy is granted, supply will increase
Technology
- If technology improves, supply will increase
Expectations
- If consumers expect the future price of a good to increase, supply will decrease
- If consumers expect the future price of a good to decrease, supply will increase
Number of suppliers
- If the number of supplies increases, supply will increase
- If the number of suppliers decreases, supply will decrease
If you have trouble remembering the exact determinants of supply, just follow this general rule:
- anything that makes it harder or more expensive to produce a good will cause the curve to shift left.
- anything that makes it easier or less expensive to produce a good will cause the curve to shift right.
Perfectly Elastic and Inelastic:
Elastic curve – A change in price will cause a large change in quantity demanded.
Inelastic curve – A change in price will cause little or no change in quantity demanded.
Definition of Producer Surplus – the difference between a producer’s minimum acceptable price and the actual price
received.
Enduring Understanding
By the completion of this section students should understand that buying and selling will occur when the buyer and
seller agree to a price.

Activity
Create real life examples using comic art to illustrate each of the following scenarios:
 consumer response to a shortage of an elastic good;
 consumer response to a significant increase in price for an inelastic good; and
 business response to increased competition in the marketplace.

 What are examples of both elastic and inelastic goods and services for an average family of four living and
working in a major urban area? The examples of both elastic and inelastic goods and services for an average
family of four living and working in a major urban area are Rice, Clean Water, Clothes, Electricity and Medication
incase of emergency.
 What are the similarities and differences for these families? The similarities of these things for that families are
they can use those eleastic and inelastic goods and services for them to solve their daily livings especially, even
you don’t have any luxury items and expensive foods, you’re still able to live as long as you have these stuff. And
about differences for these family is that all these items belong to elastic and inelastic and services but all what
I’ve mentioned is what people need most especially, those who are just an average families.
 What generalizations can you make? For the generalizations, I think I can make that if you save money you can
be able to provide your family needs and to maintain your families future so that in the very future, your
families won’t experience how hard you’ve experienced the poverty.
 Interview the purchasing manager for a business. Ask them to explain how they determine how much of a
product should be ordered in order to avoid shortages/excess inventory. The best way to prevent and reduce
excess inventory is to only purchase the products you know you’ll use. This can be done by looking at your
historical to understand seasonal trends, calculate usage, and discover your best-selling product.
 Sketch a series of supply and demand graphs for a range of products and services. Add a second demand or
supply line (in a different color) to illustrate what would happen if there was an increase or decrease. Write a
caption that explains each scenario, and how consumers may respond.
Be sure to use specific examples, and include an image of each. A possible set of graphs may include:
 Elastic good, with a demand increase
 Inelastic service, with a supply decrease
  Elastic service, with a supply decrease
 Inelastic good, with a demand increase

 Create a print, radio or television advertisement that is targeted to a specific age group which explains the
benefits of a market economy.

Advertising Is Everywhere. But there sure is an awful lot of Crap!!!

 Using a graphic organizer or some other visual representation, explain how your choices as a consumer are
affected by changes in the market place. Use three specific examples to illustrate your ideas. Ensure that you
address both elastic and inelastic demand.

We are in the middle of a major shift in how consumers choose what to buy and
how retailers (brick and mortar, as well as online) need to react to this shift to
improve sales and market share.
To begin, let’s review a brief history on how consumer choice has changed over
the past 100+ years.

In the late 1800’s, and even into the very early 1900’s, most consumer products
were custom made, whether it be clothing, furnishings, tools, etc., everything was
handcrafted. Henry Ford is credited with bringing about the mass production
evolution with his assembly line to make the old Model T Ford in 1913. Suddenly
consumers could purchase cars more cheaply and cars could be produced faster
and more efficiently.

At this point in the consumer decision making process, things began to be

controlled by the manufacturer. Consumer’s choice in a car was essentially a black
Model T Ford as that was what was being churned out. As factories and
efficiencies began to take hold in other industries, what was made was what was
bought. Limited choice and limited demand for more choices was evident in this
era. This era went on through the early 1900’s, but things began to change
during the 1940’s to 1950 ‘s range.

The key phrase is what they want to buy NOW. Be willing to adapt and leave your
current way of thinking, your “old school ways,” and embrace rapid and constant
change in key categories and hot items in order to be successful in today’s retail
environment.

It is up to you to put your retail store back into the relationship with the

consumer and manufacturer. With so many choices, they will not / need not wait
on you!

 Using a specific example (popular toy or concert tickets), explain how elastic goods or services can sometimes be
“inelastic”?
The elasticity of demand refers to the degree to which demand responds to a change in
an economic factor.

Price is the most common economic factor used when determining elasticity. Other

factors include income level and substitute availability.

Elasticity measures how demand shifts when economic factors change. When demand
remains constant regardless of price changes, it is called inelasticity.

The elasticity of demand refers to the change in demand when there is a change in
another economic factor, such as price or income.

Demand is considered inelastic if demand for a good or service remains unchanged even
when the price changes,
Elastic goods include luxury items and certain food and beverages as changes in their
prices affect demand.

Inelastic goods may include items such as tobacco and prescription drugs as demand
often remains constant despite price changes.