ENTREPRENEURS IN A MARKET ECONOMY

What is Economy?

Different countries have different economic systems

These systems affect how an item is produced

How it is distributed And the demand for the item Or whether an item is even available You must always consider market

structure, including supply, demand and price when starting a business

Command Economy

The Government determines what, how and for whom goods and services are produced

Very little choice for consumers Usually, no more than 1 choice for an

item Cuba, China, North Korea, North Vietnam,

Myanmar

Market Economy

Markets are FREE Individuals decide what, how much and

for whom they will produce their goods/services

Individual choice creates the market Millions of people make the decisions Acting as individuals Many items available Plenty of choice Supply and Demand dictates the price

Supply

How much of a good or service a provider is willing to produce at different prices

Usually, as the price of a good increases, the supply would increase as well

Due to the simple fact that suppliers would be more willing to produce these goods if they see that consumers are willing to pay more for them and so suppliers would earn more profit

E.g. Cell phones

Demand

An individuals need or desire for a good or service at a given price

As the price of a good decreases, an individual is willing to buy more

As the price of a good increases, an individual is usually inclined to buy less

E.g. Pizza slice

Equilibrium price and quantity

The forces of supply and demand work together in a market economy

These forces are FREE to work together The point at which supply and demand

curves meet, is the point of equilibrium price and quantity

This is the point where supply = demand Above the equilibrium price, fewer

consumers Below the equilibrium price, fewer supply

Economic Problems (Scarcity)

In every economy, there are limited resources

Individuals have unlimited needs and wants

Scarcity occurs when unlimited needs and wants well surpass limited resources to produce goods and services

Scarcity occurs in every economy Not all needs and wants can always be

met That’s what makes every economy

different

Productivity

The level of output that a company gets from each worker and machine used to produce goods and services

In order for productivity to increase, either a new product has to be produced or an existing product has to be produced more efficiently

Efficiency: How quickly and how well a product is produced in a given period of time with as little resource and energy as possible

Market Structure and Prices

In a Free Competitive Market, many suppliers compete for business

Buyers shop around for the best deal they can find.

Prices are determined due to competition

Monopoly

Not all markets are competitive Think of the Railway VIA Rail is really Canada’s only passenger

railway company Can they charge whatever they want? This is called a Monopoly Where a company controls the market

because of little or weak competition E.g. Microsoft (weak competition)

Business Activity in a Market

In a market economy, a business is free to produce and offer to consumers any legal product or service.

A knowledge of business activities will help entrepreneurs satisfy customers and make profit

These activities are known as the FUNCTIONS OF BUSINESS

Functions of Business

1. Production Creates or obtains products or services

for sale The main reason of a business is to

provide a product or service to make a profit

2. MarketingAll businesses need to conduct Market

Research and Analysis in order to make decisions on what types of products or services to offer their customers

These activities make up the Marketing Mix Product Distribution Price Promotion

3. ManagementTheir role is to: Solve Problems Manage to work of employees Evaluate the activities of the business Fully understand the business Develop and implement plans and

activities Setting goals Determining how to meet these goals

4. FINANCE Deal with financial records Deal with financial information Dealing with the understanding of

CAPITAL and how much is needed in the future to grow the business

ACCOUNTING