Entrepreneurship and The Economy The Entrepreneurial Process

What is
1 Entrepreneurship?
Section 1.1 Entrepreneurship and the Economy
Section 1.2 The Entrepreneurial Process
Glencoe Entrepreneurship: Building a Business

SECTION
Entrepreneurship
and the Economy
Section Objectives
• Define the role of small business and entrepreneurship in the

economy.
• Compare and contrast economic systems.
• Explain how economics is about making choices.
• Define the role of economic indicators and business cycles.
• Describe what entrepreneurs contribute to the economy.
What is Entrepreneurship?

SECTION
Entrepreneurship
and the Economy
The Main Idea
Entrepreneurship is the primary catalyst for economic growth.
Being a successful entrepreneur requires an understanding of how the

economy works.

SECTION
Entrepreneurship
and the Economy
Content Vocabulary
entrepreneur factors of production
venture scarcity
entrepreneurship market structure
entrepreneurial monopoly
economics demand
free enterprise system elastic demand
profit inelastic demand
oligopoly diminishing marginal utility
goods supply
services equilibrium
need Gross Domestic Product
want business cycle

SECTION
Entrepreneurship
and the Economy
Small Business and Entrepreneurship
As an entrepreneur, you entrepreneur

entrepreneur
accept the risks and an
responsibilities of business anindividual
individualwho
whoundertakes
undertakesthe
the
creation,
creation,organization,
organization,and
and
ownership. ownership of a business
ownership of a business

SECTION
Entrepreneurship
and the Economy
Creating and running a venture

venture
business venture requires aanew
a variety of skills. newbusiness
businessundertaking
undertakingthat
that
involves
involvesrisk
risk

SECTION
Entrepreneurship
and the Economy
entrepreneurial
entrepreneurial entrepreneurship
entrepreneurship
Starting
the a home-based an
theprocess
processofofrecognizing
recognizing an acting
actinglike
likean
anentrepreneur
entrepreneuroror
business calls
opportunity, for
opportunity, testingititininthe
testing having
the havingan anentrepreneurial
entrepreneurialmind-
mind-
market, and gathering
entrepreneurship
market, and gathering the
on the the set.
set.
resources
part of thenecessary
resources necessarytotogo
owner. gointo
into
business Entrepreneurship has
Entrepreneurship has
business
About one in three traditionally
traditionally been
been defined
defined as
as
households is involved in process of designing, launching
process of designing, launching
an entrepreneurial and
and running
running aa new
new business,
business,
enterprise. which
which typically begins asaasmall
typically begins as small
business.
business.

SECTION
Entrepreneurship
and the Economy
Entrepreneurship Today
Knowledge of economics economics

economics
contributes to an the
understanding of how thestudy
studyofofhow
howpeople
peopleallocate
allocate
scarce
scarceresources
resourcestotofulfill
fulfilltheir
their
entrepreneurs and unlimited wants
unlimited wants
customers interact.

SECTION
Entrepreneurship
and the Economy
Economic Systems
An economic system includes a set of laws, institutions, and activities

that guide economic decision making.

Economic Systems
? ?
What goods and What quantity of
services should be goods and services
produced? should be produced?
All economic systems attempt

to answer four basic questions.
? ?
How should goods For whom should
and services be goods and services be
produced? produced?
10
SECTION
Entrepreneurship
and the Economy
The Free Enterprise System
Most democratic nations free

freeenterprise
enterprisesystem
system
have a free enterprise
an
aneconomic
economicsystem
systemininwhich
which
system. people
people have important rights:toto
have important rights:
make
makeeconomic
economicchoices
choicesofofwhat
what
products to buy, to own private
products to buy, to own private
property,
property,and
andtotochoose
choosetotostart
startaa
business
businessandandcomplete
completewith
withother
other
businesses
businesses

SECTION
Entrepreneurship
and the Economy
Making a profit is a primary profit

profit
incentive of free enterprise. money
moneythat
thatisisleft
leftover
overafter
afterall
all
expenses of running a business
expenses of running a business
have
havebeen
beendeducted
deductedfrom fromthe
the
income
income

SECTION
Entrepreneurship
and the Economy
Perfect competition is a market

marketstructure
structure
market structure in which the
there are numerous buyers thenature
natureandanddegree
degreeofof
competition
competitionamong
amongbusinesses
businesses
and sellers and no single operating
operating in the sameindustry;
in the same industry;
buyer or seller can affect market
market structure affectsmarket
structure affects market
price. price
price

SECTION
Entrepreneurship
and the Economy
The government may grant monopoly

monopoly
a temporary monopoly to aamarket
an inventor. marketstructure
structureininwhich
whichaa
particular
particularcommodity
commodityhas hasonly
onlyone
one
seller
seller

SECTION
Entrepreneurship
and the Economy
Under antitrust laws, some oligopoly

oligopoly
forms of oligopoly are aamarket
illegal. marketstructure
structureininwhich
whichthere
there
are
arejust
justaafew
fewcompeting
competingfirms
firms

Basic Concepts
goods and services factors of production
Basic concepts of economics
supply and demand

scarcity
theory
16
SECTION
Entrepreneurship
and the Economy
Goods and Services
Goods and services are services

goods
services
goods
the products of our intangible
tangible (nonphysical) products
economic system. tangible(or
intangible physical)
physical)products
(nonphysical)
(or ofof
products
products
that
our
thatsatisfy
satisfyconsumers’
oureconomic
economic system wants
systemthat
consumers’ and
satisfy
wants
that and
satisfy
needs
consumers’
needs wants and needs
consumers’ wants and needs

SECTION
Entrepreneurship
and the Economy
Goods and Services
Entrepreneurs respond to need

want
want
need
consumers’ wants and something
a basic
needs with goods and basicrequirement
something
a that
thatyou
youdo
requirement for
do not
forsurvival
nothave
havetoto
survival
have
havefor
forsurvival,
survival,but
butwould
wouldlike
liketoto
services. have
have

SECTION
Entrepreneurship
and the Economy
Factors of Production
There are four basic factors

factorsofofproduction
production
factors of production: the
theresources
resourcesbusinesses
businessesuse
usetoto
• land produce
producethe
thegoods
goodsand
andservices
services
that people want
• labor that people want
• entrepreneurship
• capital

SECTION
Entrepreneurship
and the Economy
Scarcity
The principle of scarcity scarcity

scarcity
means giving up one thing the
in order to have something thedifference
differencebetween
betweendemand
demand
and
andsupply;
supply;limited
limitedresources
resources
else.

SECTION
Entrepreneurship
and the Economy
Supply and Demand Theory
In a free enterprise system, demand

demand
the price of a product is the
determined by demand. thequantity
quantityofofgoods
goodsororservices
services
that
thatconsumers
consumersare arewilling
willingand
and
able to buy at various prices
able to buy at various prices

SECTION
Entrepreneurship
and the Economy
The degree to which inelastic

elastic
elasticdemand
inelastic demand
demand
demand
demand for a product is situations
affected by its price is either situationsininwhich
whichaachange
changeinin
price
pricehas
creates
little
creates
has aor
littleachange
no
noeffect
orchange inindemand
effect on
onthe
demand
the
governed by elastic demand for products
demand for products
demand or inelastic
demand.

SECTION
Entrepreneurship
and the Economy
Due to the law of diminishing

diminishingmarginal
marginalutility
utility
diminishing marginal
the
theeffect
effectororlaw
lawthat
thatestablishes
establishes
utility, even when a that price alone does not
product’s price is low, that price alone does not
determine
determinedemand,
demand,and andthat
that
people will not keep buying other factors, such as income,
other factors, such as income,
it indefinitely. taste,
taste,and
andthe
theamount
amountofofproduct
product
already
already owned, play a roleas
owned, play a role as
well
well

SECTION
Entrepreneurship
and the Economy
Supply is continually supply

supply
shifting in the marketplace. the
theamount
amountofofgoods
goodsororservices
services
that
thatproducers
producersare
arewilling
willingtoto
provide
provide

SECTION
Entrepreneurship
and the Economy
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.

SECTION
Entrepreneurship
and the Economy
Because supply and equilibrium

equilibrium
demand are continually the
shifting in the marketplace, thepoint
pointatatwhich
whichconsumers
consumersbuybuy
all
all of a product that is supplied;atat
of a product that is supplied;
the change creates this
thispoint,
point,there
thereisisneither
neitheraa
surpluses, shortages, and surplus
surplusnornoraashortage
shortage
equilibrium.

SECTION
Entrepreneurship
and the Economy
Economic Indicators and Business Cycles
The federal government gross

grossdomestic
domesticproduct
product
publishes statistics that help the
entrepreneurs understand thetotal
totalmarket
marketvalue
valueofofthe
the
goods
goods and services producedby
and services produced by
the economy and predict workers and capital within a
workers and capital within a
possible changes. nation
nationduring
duringaagiven
givenperiod
period
The Gross Domestic
Product is an example of
an economic indicator.

SECTION
Entrepreneurship
and the Economy
Economic Indicators and Business Cycles
There are four stages of the business

businesscycle
cycle
business cycle: growth, the
recession, depression, and thegeneral
generalpattern
patternofofexpansion
expansion
and
andcontraction
contractionthat
thatthe
theeconomy
economy
recovery. goes through
goes through

What Entrepreneurs Contribute
provide
turn demand
venture
into supply
capital
What
Entrepreneurs
create Contribute
provide
more jobs
wants
promote
changes in
society
29
SECTION
Entrepreneurship
and the Economy
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.

SECTION
Entrepreneurship
and the Economy
After You Read
1. Define the role of small business and entrepreneurship in the

economy.
Entrepreneurs
Entrepreneursstart
startbybyresponding
respondingtotosociety’s
society’swants
wantsand
andend
end
up changing society, thereby creating even more wants
up changing society, thereby creating even more wants to be to be
satisfied.
satisfied.As
Asaaresult,
result,entrepreneurs
entrepreneursarearethe
thecatalysts
catalyststhat
thatmake
make
economic progress happen.
economic progress happen.

SECTION
Entrepreneurship
and the Economy
After you Read
2. Compare and contrast economic systems.
Economic
Economicsystems
systemsinclude
includeaaset
setofoflaws,
laws,institutions,
institutions,and
and
activities that guide economic decision making. There
activities that guide economic decision making. There are are
several
severalkinds:
kinds:traditional,
traditional,pure
puremarket,
market,command,
command,and andmixed.
mixed.

SECTION
Entrepreneurship
and the Economy
After you Read
3. Explain how economics is about making choices.
Because
Becauseresources
resourcesare
areininlimited
limitedsupply,
supply,ififthe
theconsumer
consumerwants
wants
one thing, he or she may have to give up something
one thing, he or she may have to give up something else. else.

SECTION
Entrepreneurship
and the Economy
After you Read
4. Define the role of economic indicators and business cycles.
The
Thefederal
federalgovernment
governmentprovides
providesstatistics
statistics(economic
(economic
indicators)
indicators) that help entrepreneurs understandthe
that help entrepreneurs understand thestate
stateofofthe
the
economy
economyand andpredict
predictpossible
possiblechanges.
changes.Business
Businesscycles
cyclesareare
general patterns of expansion and contraction that the economy
general patterns of expansion and contraction that the economy
goes
goesthrough.
through.

SECTION
Entrepreneurship
and the Economy
After you Read
5. Describe what entrepreneurs contribute to the economy.
Entrepreneurs
Entrepreneursrecognize
recognizeconsumer
consumerwants
wantsand
andsee
seethe
theeconomic
economic
opportunities in satisfying them. Entrepreneurs are a principal
opportunities in satisfying them. Entrepreneurs are a principal
source
sourceofofventure
venturecapital.
capital.Entrepreneurs
Entrepreneursprovide
providejobs.
jobs.InIndoing
doing
so, they provide for their own and others’ financial security.
so, they provide for their own and others’ financial security.
Entrepreneurs
Entrepreneurschange
changesociety
societythrough
throughthe
thebusinesses
businessestheythey
create and by responding to society’s wants and needs.
create and by responding to society’s wants and needs.

SECTION
The Entrepreneurial
Process
Section Objectives
• Analyze entrepreneurship from a historical perspective.
• Name the five components of the entrepreneurial start-up process.
• Explain how to achieve business success.

SECTION
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

SECTION
The Entrepreneurial
Process
Content Vocabulary
enterprise zones discontinuance

opportunity new venture organization
start-up resources business failure

SECTION
The Entrepreneurial
Process
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.

The History of Entrepreneurship
More government
Large diversified
regulation; smaller
companies
companies emerge
1960s 1970s 1980s 1990s
Volatile economic No job security; move to

climate; beginning of service-based economy
technology revolution influenced by technology
40
SECTION
The Entrepreneurial
Process
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

SECTION
The Entrepreneurial
Process
The Entrepreneurial Start-Up Process
The entrepreneur is the driving force of the start-up process.

Entrepreneurs recognize opportunities and pull together the
resources to exploit opportunities.

The Environment
The nature of The availability

the environment of resources
Four Categories of
Environmental Variables
Ways to Incentives to
realize value create new
businesses
43
SECTION
The Entrepreneurial
Process
The Environment
New businesses seek enterprise

enterprisezones
zones
enterprise zones that
specially
speciallydesignated
designatedareas
areasofofaa
provide incentives. community
communitythatthatprovide
providetax
tax
benefits
benefitstotonew
newbusinesses
businesses
locating
locating there; communitiesmay
there; communities may
also provide grants for new
also provide grants for new
product
productdevelopment
development

SECTION
The Entrepreneurial
Process
The Opportunity
A good opportunity can be opportunity

opportunity
turned into a business. an
anidea
ideathat
thathas
hascommercial
commercialvalue
value
An idea plus a market
equals an opportunity.

SECTION
The Entrepreneurial
Process
Start-Up Resources
When entrepreneurs are start-up

start-upresources
resources
ready to start up a new the
business, they must use thecapital,
capital,skilled
skilledlabor,
labor,
management
management expertise,legal
expertise, legaland
and
creative talent to put financial advice, facilities,
financial advice, facilities,
together the necessary equipment,
equipment,andandcustomers
customers
start-up resources. needed
needed to start abusiness
to start a business

SECTION
The Entrepreneurial
Process
The New Venture Organization
The fifth component of the new

newventure
ventureorganization
organization
start-up process is the the
execution of the new theinfrastructure
infrastructureororfoundation
foundation
that supports all the products,
that supports all the products,
venture organization. processes,
processes,andandservices
servicesofofaanew
new
business
business

SECTION
The Entrepreneurial
Process
The Facts About Business Failure
A business failure files discontinuance

business failure
discontinuance
business failure
Chapter 7 bankruptcy. that disappears from
aabusiness
business thathas hasstopped
disappears
stoppedfrom
A business that disappears the
thetax
taxrolls
operating,rolls
operating,
because
with
withaaloss ititmay
lossto
because be
creditors,
tomay be
creditors,
from the tax rolls may be a operating
and no
operating
and
under
nolonger
longer
a new
appears
under a newon
appears
name
onthe
name ortax
theortax
failure or a because
rolls the owner has purposely
because the owner has purposely
rolls
discontinuance. discontinued
discontinuedininorder
ordertotostart
startaa
new
newbusiness
business

How Entrepreneurs Can Succeed
4. Plan and manage effectively
3. Assemble an expert team to execute

the business concept
2. Test the opportunity in the marketplace
1. Recognize opportunity
49
SECTION
The Entrepreneurial
Process
After You Read
1. Describe entrepreneurship from a historicalperspective.
Entrepreneurship
Entrepreneurshiphashasbeen
beenaadistinct
distinctfeature
featureofofAmerican
American
culture
culture since the American Revolution. Enterprisingcolonists
since the American Revolution. Enterprising colonists
found
foundinnovative
innovativeways
waystotointroduce
introducenew
newproducts
productsandandservices.
services.
InInthe 1980s entrepreneurship became a popular topic.
the 1980s entrepreneurship became a popular topic.

SECTION
The Entrepreneurial
Process
After You Read
2. Discuss the five components of the entrepreneurial start-up

process.
The
Theentrepreneurial
entrepreneurialstart-up
start-upprocess
processincludes
includesthe
theentrepreneur,
entrepreneur,
the
the environment, the opportunity, start-up resources,and
environment, the opportunity, start-up resources, andthe
the
new
newventure
ventureorganization.
organization.

SECTION
The Entrepreneurial
Process
After You Read
3. Explain how to achieve business success.
The
Thechances
chancesofofaanew
newbusiness
businesssucceeding
succeedingare
aregood
goodwithwith
effective
effective planning and management. Entrepreneurs mustlearn
planning and management. Entrepreneurs must learn
how
howtotorecognize
recognizeopportunity,
opportunity,test
testthat
thatopportunity
opportunityininthe
the
marketplace, and assemble a team with the necessary expertise
marketplace, and assemble a team with the necessary expertise
totoexecute
executethe
thebusiness
businessconcept.
concept.

What is
1 Entrepreneurship?
End of
Chapter 1
What is
Entrepreneurship?

Entrepreneurship and The Economy The Entrepreneurial Process

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What is

Section 1.1 Entrepreneurship and the Economy

Section 1.2 The Entrepreneurial Process

Glencoe Entrepreneurship: Building a Business

• Define the role of small business and entrepreneurship in the

Glencoe Entrepreneurship: Building a Business

The Main Idea

Entrepreneurship is the primary catalyst for economic growth.

Being a successful entrepreneur requires an understanding of how the

Glencoe Entrepreneurship: Building a Business

Glencoe Entrepreneurship: Building a Business

Small Business and Entrepreneurship

As an entrepreneur, you entrepreneur

Glencoe Entrepreneurship: Building a Business

Small Business and Entrepreneurship

Creating and running a venture

Glencoe Entrepreneurship: Building a Business

Small Business and Entrepreneurship

Glencoe Entrepreneurship: Building a Business

Knowledge of economics economics

Glencoe Entrepreneurship: Building a Business

An economic system includes a set of laws, institutions, and activities

Glencoe Entrepreneurship: Building a Business

All economic systems attempt

The Free Enterprise System

Most democratic nations free

Glencoe Entrepreneurship: Building a Business

The Free Enterprise System

Making a profit is a primary profit

Glencoe Entrepreneurship: Building a Business

The Free Enterprise System

Perfect competition is a market

Glencoe Entrepreneurship: Building a Business

The Free Enterprise System

The government may grant monopoly

Glencoe Entrepreneurship: Building a Business

The Free Enterprise System

Under antitrust laws, some oligopoly

Glencoe Entrepreneurship: Building a Business

goods and services factors of production

Basic concepts of economics

supply and demand

Goods and Services

Goods and services are services

Glencoe Entrepreneurship: Building a Business

Goods and Services

Entrepreneurs respond to need

Glencoe Entrepreneurship: Building a Business

There are four basic factors

Glencoe Entrepreneurship: Building a Business

The principle of scarcity scarcity

Glencoe Entrepreneurship: Building a Business

Supply and Demand Theory

In a free enterprise system, demand

Glencoe Entrepreneurship: Building a Business

Supply and Demand Theory

The degree to which inelastic

Glencoe Entrepreneurship: Building a Business

Supply and Demand Theory

Due to the law of diminishing

Glencoe Entrepreneurship: Building a Business

Supply and Demand Theory

Supply is continually supply