Chapter 2

Entrepreneurs in a Market
Economy
2.1 Entrepreneurs Satisfy Needs and
Wants
2.2 How Economic Decisions are
Made
2.3 What Affects Price?
 Lesson 2.1

Entrepreneurs Satisfy Needs and Wants

Goals
• Distinguish between needs and wants.
• Describe the types of economic
resources.
• Describe the role of entrepreneurs in
the U.S. economy.

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 Terms
• needs
• wants
• economic resources

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 Is It a Need or a Want?
• needs
– things that are necessary for survival
• wants
– things you think you must have in order to be
satisfied
– add comfort and pleasure to your life

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 The role of business is to produce and
distribute goods and services that
people need and want.

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 Needs
• Maslow’s hierarchy of needs states that:
– People’s basic psychological needs must be
satisfied before they can focus on higher level
needs.

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 needs
– vary from individual to individual
– vary by situation

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 Wants
• economic wants
– a desire for material goods and services
– are the basis of an economy
• clothing
• housing
• hairstyling
• noneconomic wants
– nonmaterial things
• sunshine
• fresh air
• happiness

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 Needs and Wants are Unlimited
• Needs and wants are infinite.
• Satisfying one need or want may trigger a
new need or want.

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What is the difference between
needs and wants?

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 Economic Resources
• economic resources
– the means through which goods and services
are produced
• goods
– products you can see and touch
• services
– activities that are consumed as they are
produced

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 Entrepreneurs use economic resources
to create the goods and services
consumers use.

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 Factors of Production
• natural resources
– raw materials supplied by nature
• human resources
– the people who create goods and services
• capital resources
– the assets invested in the production of goods
and services

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 Limited Resources
• Economic resources are limited.
– Individuals, businesses, and countries
compete for resources.
– High demand for a limited resource drives up
the price for the resource.

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List the three types of economic
resources and give an example of
each.

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 Role of Entrepreneurs in the U.S.
Economy
• Entrepreneurs are the backbone of the
U.S. economy.
• The development of small businesses
helps to ensure a strong economic future.

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 Supply and Demand
• Entrepreneurs look for unmet needs to
satisfy consumer needs and wants.

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 Capital Investment and Job
Creation
• Entrepreneurs contribute to their local
communities through:
– investment
– job creation

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 Change Agents
• The creation of new products can:
– change the way people live
– alter the way people conduct business
• As entrepreneurs create more goods and
services, the needs and wants of
consumers increase.

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What are some things
entrepreneurs contribute to the U.S.
economy?

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 Lesson 2.2

How Economic Decisions are Made

Goals
• Compare and contrast different types of
economic systems.
• Describe the characteristics of the U.S.
economy.

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 Explain how scarcity affects economic
decisions.
• Explain how business functions are used
to satisfy consumers.

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 Terms
• capitalism
• profit
• economic decision making
• scarcity
• opportunity cost

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 Economic Systems
• Each economy must answer three basic
questions regarding goods and services:
– Which ones will be produced?
– How will they be produced?
– What needs and wants will they satisfy?

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 A variety of economic systems exist.
– Command Economy
• Production decisions are made by the
government.
• Few choices exist in the marketplace.
– Market Economy
• Production decisions are made by individuals and
businesses.
• Ample choices exist in the marketplace.
• Entrepreneurship thrives in a market economy.

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 China
• The current population
of China is 1,384,641,665 as of Sunday,
November 13, 2016, based on the latest United
Nations estimates.
• China population is equivalent to 18.72% of the
total world population.
• China ranks number 1 in the list of
countries (and dependencies) by population.

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 NBA draft: 2002,
Houston Rockets (Round: 1 /
Pick: 1)
Chapter 2 Slide 28
 Traditional Economy
• Production occurs the way it has always occurred.
• Most production is consumed.
• Left over production is sold or traded.
• Countries with traditional economies are not
participating in the global economy.
– Mixed Economy
• These economies contain elements of command
and market economies.
• Sometimes these economies occur because a
country is shifting from either a command or
traditional economy toward a market economy.

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 communism
• a command economic system
• government-led plans direct resources toward
economic growth

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How does the type of economy
affect the way the basic economic
questions are answered?

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 The U.S. Economic System
• capitalism
– the private ownership of resources by
individuals rather than by the government
– individual businesses and consumers make
the majority of production decisions
– also called free enterprise

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 The U.S. economic system of capitalism
is based on four economic principles.
– Private Property
• You may own whatever you want as long as you
operate within the law.
– Freedom of Choice
• Government intervention occurs only when
individual decisions will bring harm to others.

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 Profit
• the difference between the revenues taken in by
a business and the costs of operating the
business
• The opportunity to earn a profit is at the heart of
the free-enterprise system.
– Competition
• the rivalry among businesses to sell their goods
and services

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Describe the four basic principles of
the U.S. economic system.

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 Economic Choices
• economic decision making
– the process of choosing which needs and
wants, among several, you will satisfy using
the resources you have

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 Scarcity
• occurs when there are limited resources
available to meet the unlimited needs and wants
of consumers
• Scarcity forces you to make decisions about
tradeoffs.
– Opportunity Cost
• the value of the next-best alternative (the one
you pass up)

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What factors affect economic
choices?

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 Functions of Business
• Production
– A profit is earned by selling products or
services to consumers.
– The production function creates or obtains
products or services.

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 Marketing
– The goal of marketing is to attract as many
consumers as possible.
– The marketing mix includes:
• product
• distribution
• price
• promotion

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 Management
– The duties of management include:
• setting goals
• deciding on responses to competition
• solving problems
• managing employees
• evaluating business activities

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 Finance
– Financial duties include:
• determining capital requirements
• determining capital resources
• managing the financial aspects of the business

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What are the functions of business?

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 Lesson 2.3

What Affects Price?

Goals
• Explain how supply and demand
interact to determine price.
• Describe how costs of doing business
affect the price of a good or service.
• Explain the effect of different market
structures on price.

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 Terms
• supply
• demand
• equilibrium price and quantity
• fixed costs
• variable costs
• marginal benefit
• marginal cost

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 How Much Is Enough?
• supply
– how much of a good or service a producer is
willing to produce at different prices
• demand
– an individual’s need or desire for a product or
service at a given price

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 demand elasticity
– when the demand of a product is affected by
its price
• elastic demand
– when a change is price creates a change in
demand
• inelastic demand
– when a change in price creates very little
change in demand

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 When Supply and Demand Meet
• equilibrium price and quantity
– the price at which supply equals demand

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What effect do supply and demand
have on the price of a good or
service?

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 Costs of Doing Business
• fixed costs (sunk costs)
– costs that must be paid regardless of how
much of a good or service is produced
• variable costs
– costs that fluctuate depending on the quantity
of the good or service produced

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 Fixed costs will be incurred regardless
of the level of sales.
• Businesses with many fixed costs have a
higher risk than businesses with mostly
variable costs.

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 marginal benefit
– measures the advantages of producing one
additional unit of a good or service
• marginal cost
– measures the disadvantages of producing
one additional unit of a good or service

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How do the costs of doing business
affect prices?

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 Market Structure and Prices

• Perfect Competition
– Characteristics of perfect competition
include:
• a very large number of businesses
• nearly identical products
• many well-informed buyers
• difficult to raise prices
• consumers have more control over the market
• businesses can leave or enter the market easily
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 Monopolistic Competition
– Characteristics of monopolistic competition
include:
• a large number of independent businesses
• goods and services that are somewhat different
• each business has a small share of the market
• prices are determined competitively
• differentiating products is important
• businesses can easily enter or leave the market

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 Oligopoly
– Characteristics of an oligopoly include:
• a small number of businesses that obtain the
majority of total sales revenues
• the goods are similar and are close substitutes
• businesses can influence prices
• it is hard to enter the market

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 Monopoly
– Characteristics of a monopoly include:
• a single provider of a product or service
• complete price control
• if prices get to high, consumers may elect to do
without the product or service
• entry barriers exist that inhibit competition

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How does the market structure
affect the price of a good or
service?

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 PERFORMANCE INDICATORS
EVALUATED
• Understand how a current issue affects the
economy.
• Communicate an opinion based upon facts
and figures.

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 Work as a team to persuade the audience
to support a certain viewpoint.
• Manage time effectively to research,
outline, and present a viewpoint.
• Demonstrate effective teamwork and align
ideas into a persuasive argument.

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 THINK CRITICALLY
1. What are two advantages of allowing
illegal immigrants to stay in the United
States?
2. Why are businesses concerned about
the government’s actions involving
illegal immigrants from Mexico?

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3. Why are politicians conflicted by the illegal
immigrant issue?
4. How can the United States ensure that
illegal immigrants take the necessary
steps to obtain legal citizenship?

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