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Section 2.1 Importance of

Entrepreneurship

in the Economy

Section 2.2 Thinking Globally,

Acting Locally

Entrepreneurship& the Economy

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OBJECTIVES

Describe an economic system

Identify different economic systems

Examine supply and demand relationships

Explore the role of competition in a market economy

Describe the profit motive

Learn about nonprofit organizations

Importance ofEntrepreneurshipin the Economy

2Section 2.1: Importance of Entrepreneurship in the Economy

What Is an Economic System?Economics is a social science concerned with how people satisfy their demands for goods (things you can buy) and services (things people do for a fee) when the supply of those goods and services is limited.

Economics is all about the flow of goods and services

between people.

When there are not enough goods and services to

meet the demand, the result is a scarcity of those

goods and services.

An economic system (or economy) is a method used

by a society to allocate goods and services among its

people and to cope with scarcity.

3Section 2.1: Importance of Entrepreneurship in the Economy

4

Fundamental Questionsof Economics

What goods and services are produced?

What quantity of goods and services are

produced?

How are goods and services produced?

For whom are goods and services

produced?

Section 2.1: Importance of Entrepreneurship in the Economy

Types of Economic Systems

Two very different types of economic systems are often used to compare how societies deal with the fundamental questions of economics. These systems are the command economy and the market economy.

In a command economy, the government owns or

manages the nation’s resources and businesses.

In a market economy, suppliers produce whatever

goods and services they wish and set prices based on

what consumers are willing to pay.

Another name for the market economy is the free

enterprise system.

5Section 2.1: Importance of Entrepreneurship in the Economy

Supply and Demand

6Section 2.1: Importance of Entrepreneurship in the Economy

Supply is the quantity of goods and services a business is willing to sell at a specific price and a specific time.

A supply curve on a graph

shows the quantity of a

product or service a supplier

is willing to sell across a

range of prices over a

specified period of time.

Demand Curve

7Section 2.1: Importance of Entrepreneurship in the Economy

Demand is the quantity of goods and services consumers are willing to buy at a specific price and a specific time.

A demand curve on a

graph shows the quantity of

a product or service

consumers are willing to

buy across a range of prices

over a specified period of

time.

Supply and Demand CurvesA supply and demand curve is a graph that includes both a supply curve and a demand curve. It shows the relationship between price and the quantity of a product or service that is supplied and demanded.

Section 2.1: Importance of Entrepreneurship in the Economy 8

Competition in aMarket Economy

Competition is common in a market economy. People are free to start and operate businesses that compete against each other.

If a supplier lowers the price of a product or service,

consumers typically buy from that supplier rather than

from others.

In a market economy, there is not only competition

between suppliers but also competition between

consumers. When consumers compete against each

other to buy a product, they push prices upward.

Section 2.1: Importance of Entrepreneurship in the Economy 9

Profit MotiveA business makes a profit when the amount of money coming in from sales is greater than the business’s expenses.

Profit is a business’s reward for successfully providing

goods and services that satisfy consumers’ demands.

The profit motive is an incentive that encourages

entrepreneurs to take business risks in the hope of

making a profit.

Entrepreneurs who consistently make a profit over time

can build their own wealth and ensure financial

independence.

Many entrepreneurs use profit to benefit their existing

businesses, start new ones, or invest in the enterprises

of others.

Section 2.1: Importance of Entrepreneurship in the Economy 10

Economics of One Unit

The economics of one unit is a calculation of the profit (or loss) for each unit of sale made by a business. Calculate the economics of one unit by subtracting the expenses for the unit of sale from its selling price.

A unit of sale has a selling price to the consumer and an

expense for the entrepreneur. The economics of one unit

is the difference between the selling price and its expense.

Section 2.1: Importance of Entrepreneurship in the Economy 11

Selling Price – Expense = Profit (or Loss)

Economics of One UnitIf the equation on the previous slide results in a positive number, you’ve made a profit. If it’s negative, you have a loss. A business that cannot make a profit from one unit of sale will not ever make a profit, no matter how many units it sells.

Another way to look at profit is as a percentage of the

selling price. This calculation tells an entrepreneur the

profit percentage based on sales. The formula per unit of

sale is:

Section 2.1: Importance of Entrepreneurship in the Economy 12

(Profit/Selling Price) x 100 = Profit %

Economics of One UnitAn entrepreneur buys plain backpacks and decorates them at home with hand-drawn art, stitching, buttons, and stickers before reselling them at the flea market for $25 each.

Because each backpack is different, the entrepreneur uses an average backpack as the unit of sale.

13Section 2.1: Importance of Entrepreneurship in the Economy

Nonprofit OrganizationsA nonprofit organization operates solely to serve the good of society. Nonprofits are not governmental organizations. They operate much like for-profit businesses. Money comes into the nonprofit from donations, government grants, or the sale of goods and services to consumers.

Nonprofit companies also have expenses. If the

money coming in is greater than the money going

out, a nonprofit company will have a surplus (profit).

Any profit a nonprofit earns must, by law, be used to

support the organization’s social mission. It cannot be

used for the financial gain of the people running the

nonprofit.

Section 2.1: Importance of Entrepreneurship in the Economy 14

SE

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OBJECTIVES

Define the global economy

Identify factors that affect entrepreneurs in international

trade

Describe relationships between the global economy

and the local economy

Thinking Globally,Acting Locally

15Section 2.2: Thinking Globally, Acting Locally

The Global Economy

The global economy is the flow of goods and services aroundthe whole world.

Exporting is the business activity in which goods or

services are sent from a country and sold to foreign

consumers.

Importing is the business activity in which goods and

services are brought into a country from foreign

suppliers.

Modern technology connects suppliers and consumers

around the world. The Internet, in particular, has made

international trade easier, faster, and more convenient

than ever before.

16Section 2.2: Thinking Globally, Acting Locally

Entrepreneurs and International Trade

Entrepreneurs benefit from international trade by exporting goods or services that are in demand in foreign countries and importing foreign goods and materials to their own country.

A trade barrier is a governmental restriction on

international trade.

The foreign exchange rate is the value of one

currency unit in relation to another.

Fair trade policies ensure that small producers in

developing nations earn sufficient profit on their

exported goods to improve their working,

environmental, and social conditions.

17Section 2.2: Thinking Globally, Acting Locally

The Local EconomyA local economy covers a limited area, such as a community or town.

Entrepreneurs can benefit their local economies by:

Purchasing materials and supplies from local merchants

Opening an account at a local bank, credit union, or other financial

institution

Joining a local business association, trade group, or civic

organization that supports local economic development

Paying local taxes that benefit schools and other public services

Investing money in local businesses

Donating money, time, or goods to local charities and

organizations

Hiring local employees

Supplying goods and services to local consumers18Section 2.2: Thinking Globally, Acting Locally