Section 2.

1 Importance of
Entrepreneurship
in the Economy
Section 2.2 Thinking Globally,
Acting Locally
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

Section 2.1: Importance of Entrepreneurship in the Economy 2

 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.

Section 2.1: Importance of Entrepreneurship in the Economy 3

Section 2.1: Importance of Entrepreneurship in the Economy 4
 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.

Section 2.1: Importance of Entrepreneurship in the Economy 5

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.

Section 2.1: Importance of Entrepreneurship in the Economy 6

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.

Section 2.1: Importance of Entrepreneurship in the Economy 7

Section 2.1: Importance of Entrepreneurship in the Economy 8
 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 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

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

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

An 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.

Section 2.1: Importance of Entrepreneurship in the Economy 13

A 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

OBJECTIVES
 Define the global economy
 Identify factors that affect entrepreneurs in international
trade
 Describe relationships between the global economy and the
local economy

Section 2.2: Thinking Globally, Acting Locally 15

 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.

Section 2.2: Thinking Globally, Acting Locally 16

 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.

Section 2.2: Thinking Globally, Acting Locally 17

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 consumers

Section 2.2: Thinking Globally, Acting Locally 18