CH - 01 Entrepreneurship

1
What is
Entrepreneurship?
Section
Section
1.1
Entrepreneurship and the Economy
1.2
The Entrepreneurial Process
Glencoe Entrepreneurship: Building a Business
SECTIO
N
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?
SECTIO
N
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.
SECTIO
N
Entrepreneurship
and the Economy
Content Vocabulary
entrepreneur
venture
entrepreneurship
entrepreneurial
economics
free enterprise system
profit
oligopoly
goods
services
need
want
factors of production
scarcity
market structure
monopoly
demand
elastic demand
inelastic demand
diminishing marginal utility
supply
equilibrium
Gross Domestic Product
business cycle
SECTIO
N
Entrepreneurship
and the Economy
Small Business and Entrepreneurship
As an entrepreneur, you
accept the risks and
responsibilities of business
ownership.
entrepreneur
entrepreneur
an
anindividual
individualwho
whoundertakes
undertakesthe
the
creation,
creation,organization,
organization,and
and
ownership
of
a
business
ownership of a business
SECTIO
N
Entrepreneurship
and the Economy
Creating and running a

business venture requires
a variety of skills.
venture
venture
aanew
newbusiness
businessundertaking
undertakingthat
that
involves
involvesrisk
risk
SECTIO
N
Entrepreneurship
and the Economy
Starting a home-based
business calls for
entrepreneurship on the
part of the owner.
About one in three
households is involved in
an entrepreneurial
enterprise.
entrepreneurship
entrepreneurial
entrepreneurship
entrepreneurial
acting
like
entrepreneur
oror
the
ofof
recognizing
acting
likean
an
entrepreneur
theprocess
process
recognizingan
an
having
an
entrepreneurial
mindopportunity,
testing
it
in
the
having
an entrepreneurial
opportunity,
testing it in themindset
market,
and
gathering
set
market, and gatheringthe
the
resources
necessary
to
resources necessary togo
gointo
into
business
business
SECTIO
N
Entrepreneurship
and the Economy
Entrepreneurship Today
Knowledge of economics
contributes to an
understanding of how
entrepreneurs and
customers interact.
economics
economics
the
thestudy
studyofofhow
howpeople
peopleallocate
allocate
scarce
scarceresources
resourcestotofulfill
fulfilltheir
their
unlimited
wants
unlimited wants
SECTIO
N
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

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

to answer four basic questions.
How should goods and

services be produced?
For whom should

goods and services be
produced?
10
SECTIO
N
Entrepreneurship
and the Economy
The Free Enterprise System
Most democratic nations

have a free enterprise
system.
free
freeenterprise
enterprisesystem
system
an
aneconomic
economicsystem
systemininwhich
which
people
have
important
rights:
people have important rights:toto
make
makeeconomic
economicchoices
choicesofofwhat
what
products
to
buy,
to
own
private
products to buy, to own private
property,
property,and
andtotochoose
choosetotostart
startaa
business
businessand
andcomplete
completewith
withother
other
businesses
businesses
SECTIO
N
Entrepreneurship
and the Economy
Making a profit is a primary

incentive of free enterprise.
profit
profit
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
SECTIO
N
Entrepreneurship
and the Economy
Perfect competition is a
market structure in which
there are numerous buyers
and sellers and no single
buyer or seller can affect
price.
market
marketstructure
structure
the
thenature
natureand
anddegree
degreeofof
competition
competitionamong
amongbusinesses
businesses
operating
in
the
same
operating in the sameindustry;
industry;
market
structure
affects
market structure affectsmarket
market
price
price
SECTIO
N
Entrepreneurship
and the Economy
The government may grant

a temporary monopoly to
an inventor.
monopoly
monopoly
aamarket
marketstructure
structureininwhich
whichaa
particular
particularcommodity
commodityhas
hasonly
onlyone
one
seller
seller
SECTIO
N
Entrepreneurship
and the Economy
Under antitrust laws, some

forms of oligopoly are
illegal.
oligopoly
oligopoly
aamarket
marketstructure
structureininwhich
whichthere
there
are
arejust
justaafew
fewcompeting
competingfirms
firms
Basic Concepts
goods and services
factors of production
Basic concepts of economics
scarcity
supply and demand

theory
16
SECTIO
N
Entrepreneurship
and the Economy
Goods and Services
Goods and services are

the products of our
economic system.
services
goods
services
goods
intangible
(nonphysical)
products
tangible
physical)
ofof
intangible
(nonphysical)
products
tangible(or
(or
physical)products
products
that
satisfy
wants
and
our
system
satisfy
that
satisfyconsumers
consumers
wants
and
oureconomic
economic
systemthat
that
satisfy
needs
consumers
wants
and
needs
needs
consumers wants and needs
SECTIO
N
Entrepreneurship
and the Economy
Goods and Services
Entrepreneurs respond to
consumers wants and
needs with goods and
services.
need
want
want
need
something
a
basic
that
for
not
survival
have
something
a
basicrequirement
requirement
thatyou
youdo
do
for
not
survival
havetoto
have
havefor
forsurvival,
survival,but
butwould
wouldlike
liketoto
have
have
SECTIO
N
Entrepreneurship
and the Economy
Factors of Production
There are four basic

factors of production:
land
labor
entrepreneurship
capital
factors
factorsofofproduction
production
the
theresources
resourcesbusinesses
businessesuse
usetoto
produce
producethe
thegoods
goodsand
andservices
services
that
people
want
that people want
SECTIO
N
Entrepreneurship
and the Economy
Scarcity
The principle of scarcity

means giving up one thing
in order to have something
else.
scarcity
scarcity
the
thedifference
differencebetween
betweendemand
demand
and
andsupply;
supply;limited
limitedresources
resources
SECTIO
N
Entrepreneurship
and the Economy
Supply and Demand Theory
In a free enterprise system,

the price of a product is
determined by demand.
demand
demand
the
thequantity
quantityofofgoods
goodsororservices
services
that
thatconsumers
consumersare
arewilling
willingand
and
able
to
buy
at
various
prices
able to buy at various prices
SECTIO
N
Entrepreneurship
and the Economy
The degree to which

demand for a product is
affected by its price is either
governed by elastic
demand or inelastic
demand.
inelastic
elastic
demand
elasticdemand
inelastic
demand
demand
situations
situationsininwhich
whichaachange
changeinin
price
creates
little
aor
no
inindemand
on
pricehas
creates
has
little
achange
orchange
noeffect
effect
demand
onthe
the
demand
for
products
demand for products
SECTIO
N
Entrepreneurship
and the Economy
Due to the law of

diminishing marginal
utility, even when a
products price is low,
people will not keep buying
it indefinitely.
diminishing
diminishingmarginal
marginalutility
utility
the
theeffect
effectororlaw
lawthat
thatestablishes
establishes
that
price
alone
does
not
that price alone does not
determine
determinedemand,
demand,and
andthat
that
other
factors,
such
as
income,
other factors, such as income,
taste,
taste,and
andthe
theamount
amountofofproduct
product
already
owned,
play
a
role
already owned, play a roleas
aswell
well
SECTIO
N
Entrepreneurship
and the Economy
Supply is continually
shifting in the marketplace.
supply
supply
the
theamount
amountofofgoods
goodsororservices
services
that
thatproducers
producersare
arewilling
willingtoto
provide
provide
SECTIO
N
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.
SECTIO
N
Entrepreneurship
and the Economy
Because supply and

demand are continually
shifting in the marketplace,
the change creates
surpluses, shortages, and
equilibrium.
equilibrium
equilibrium
the
thepoint
pointatatwhich
whichconsumers
consumersbuy
buy
all
of
a
product
that
is
supplied;
all of a product that is supplied;atat
this
thispoint,
point,there
thereisisneither
neitheraa
surplus
surplusnor
noraashortage
shortage
SECTIO
N
Entrepreneurship
and the Economy
Economic Indicators and Business Cycles
The federal government

publishes statistics that help
entrepreneurs understand
the economy and predict
possible changes.
The Gross Domestic
Product is an example of
an economic indicator.
gross
grossdomestic
domesticproduct
product
the
thetotal
totalmarket
marketvalue
valueofofthe
the
goods
and
services
produced
goods and services producedby
by
workers
and
capital
within
a
nation
workers and capital within a nation
during
duringaagiven
givenperiod
period
SECTIO
N
Entrepreneurship
and the Economy
Economic Indicators and Business Cycles
There are four stages of the

business cycle: growth,
recession, depression, and
recovery.
business
businesscycle
cycle
the
thegeneral
generalpattern
patternofofexpansion
expansion
and
andcontraction
contractionthat
thatthe
theeconomy
economy
goes
through
goes through
What Entrepreneurs Contribute
turn demand
into supply
create
more
wants
provide
venture
capital
What
Entrepreneurs
Contribute
provide
jobs
promote
changes in
society
29
SECTIO
N
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.
Entrepreneurship
and the Economy
SECTIO
N
After You Read

1.
Define the role of small business and entrepreneurship in the

economy.
Entrepreneurs
Entrepreneursstart
startby
byresponding
respondingtotosocietys
societyswants
wantsand
andend
end
up
changing
society,
thereby
creating
even
more
wants
to
be
up changing society, thereby creating even more wants to be
satisfied.
satisfied.As
Asaaresult,
result,entrepreneurs
entrepreneursare
arethe
thecatalysts
catalyststhat
thatmake
make
economic
progress
happen.
economic progress happen.
Entrepreneurship
and the Economy
SECTIO
N
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
are
activities that guide economic decision making. There are
several
severalkinds:
kinds:traditional,
traditional,pure
puremarket,
market,command,
command,and
andmixed.
mixed.
Entrepreneurship
and the Economy
SECTIO
N
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
else.
one thing, he or she may have to give up something else.
Entrepreneurship
and the Economy
SECTIO
N
After you Read

4.
Define the role of economic indicators and business cycles.
The
Thefederal
federalgovernment
governmentprovides
providesstatistics
statistics(economic
(economic
indicators)
that
help
entrepreneurs
understand
indicators) that help entrepreneurs understandthe
thestate
stateofofthe
the
economy
and
predict
possible
changes.
Business
cycles
are
economy and predict possible changes. Business cycles are
general
generalpatterns
patternsofofexpansion
expansionand
andcontraction
contractionthat
thatthe
theeconomy
economy
goes
goesthrough.
through.
Entrepreneurship
and the Economy
SECTIO
N
After you Read

5.
Describe what entrepreneurs contribute to the economy.
Entrepreneurs
Entrepreneursrecognize
recognizeconsumer
consumerwants
wantsand
andsee
seethe
the
economic
opportunities
in
satisfying
them.
Entrepreneurs
economic opportunities in satisfying them. Entrepreneursare
areaa
principal
principalsource
sourceofofventure
venturecapital.
capital.Entrepreneurs
Entrepreneursprovide
providejobs.
jobs.
InIndoing
so,
they
provide
for
their
own
and
others
financial
doing so, they provide for their own and others financial
security.
security.Entrepreneurs
Entrepreneurschange
changesociety
societythrough
throughthe
thebusinesses
businesses
they
create
and
by
responding
to
societys
wants
and
they create and by responding to societys wants andneeds.
needs.
SECTI
ON
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.
SECTI
ON
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
The Entrepreneurial
Process
SECTI
ON
Content Vocabulary
enterprise zones
opportunity
start-up resources
discontinuance
new venture organization
business failure
SECTI
ON
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
regulation; smaller
companies emerge
Large diversified
companies
1960s
1970s
Volatile economic
climate; beginning of
technology revolution
1980s
1990s
No job security; move to

service-based economy
influenced by technology
40
SECTI
ON
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
SECTI
ON
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 environment
The availability
of resources
Four Categories of
Environmental Variables
Ways to
realize value
Incentives to
create new
businesses
43
SECTI
ON
The Entrepreneurial
Process
The Environment
New businesses seek

enterprise zones that
provide incentives.
enterprise
enterprisezones
zones
specially
speciallydesignated
designatedareas
areasofofaa
community
communitythat
thatprovide
providetax
tax
benefits
benefitstotonew
newbusinesses
businesses
locating
there;
communities
locating there; communitiesmay
may
also
provide
grants
for
new
also provide grants for new
product
productdevelopment
development
SECTI
ON
The Entrepreneurial
Process
The Opportunity
A good opportunity can be

turned into a business.
An idea plus a market
equals an opportunity.
opportunity
opportunity
an
anidea
ideathat
thathas
hascommercial
commercialvalue
value
SECTI
ON
The Entrepreneurial
Process
Start-Up Resources
When entrepreneurs are

ready to start up a new
business, they must use
creative talent to put
together the necessary
start-up resources.
start-up
start-upresources
resources
the
thecapital,
capital,skilled
skilledlabor,
labor,
management
expertise,
management expertise,legal
legaland
and
financial
advice,
facilities,
financial advice, facilities,
equipment,
equipment,and
andcustomers
customers
needed
to
start
a
needed to start abusiness
business
SECTI
ON
The Entrepreneurial
Process
The New Venture Organization
The fifth component of the

start-up process is the
execution of the new
venture organization.
new
newventure
ventureorganization
organization
the
theinfrastructure
infrastructureororfoundation
foundation
that
supports
all
the
products,
that supports all the products,
processes,
processes,and
andservices
servicesofofaanew
new
business
business
SECTI
ON
The Entrepreneurial
Process
The Facts About Business Failure
A business failure files

Chapter 7 bankruptcy.
A business that disappears
from the tax rolls may be a
failure or a
discontinuance.
business
discontinuance
failure
business
discontinuance
failure
aabusiness
disappears
stopped
from
businessthat
thathas
has
disappears
stopped
from
operating,
the
tax
rolls
with
because
a
loss
it
to
may
creditors,
be
operating,
the tax rollswith
because
a loss ittomay
creditors,
be
and
operating
no
under
appears
aanew
on
or
tax
and
operating
nolonger
longer
under
appears
newname
name
onthe
the
or
tax
rolls
because
the
owner
has
purposely
rolls
because the owner has purposely
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
The Entrepreneurial
Process
SECTI
ON
After You Read

1.
Describe entrepreneurship from a historicalperspective.
Entrepreneurship
Entrepreneurshiphas
hasbeen
beenaadistinct
distinctfeature
featureofofAmerican
American
culture
since
the
American
Revolution.
Enterprising
culture since the American Revolution. Enterprisingcolonists
colonists
found
foundinnovative
innovativeways
waystotointroduce
introducenew
newproducts
productsand
andservices.
services.
InInthe
1980s
entrepreneurship
became
a
popular
topic.
the 1980s entrepreneurship became a popular topic.
The Entrepreneurial
Process
SECTI
ON
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
environment,
the
opportunity,
start-up
resources,
the environment, the opportunity, start-up resources,and
andthe
the
new
newventure
ventureorganization.
organization.
The Entrepreneurial
Process
SECTI
ON
After You Read

3.
Explain how to achieve business success.
The
Thechances
chancesofofaanew
newbusiness
businesssucceeding
succeedingare
aregood
goodwith
with
effective
planning
and
management.
Entrepreneurs
must
effective planning and management. Entrepreneurs mustlearn
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
Entrepreneurship?
End of
Chapter 1
What is
Entrepreneurship?

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1

Entrepreneurship and the Economy

The Entrepreneurial Process

Glencoe Entrepreneurship: Building a Business

Define the role of small business and entrepreneurship in the

The Main Idea

Small Business and Entrepreneurship

Small Business and Entrepreneurship

Creating and running a

Small Business and Entrepreneurship

What goods and

All economic systems attempt

How should goods and

For whom should

The Free Enterprise System

Most democratic nations

The Free Enterprise System

Making a profit is a primary

The Free Enterprise System

The Free Enterprise System

The government may grant

The Free Enterprise System

Under antitrust laws, some

Basic concepts of economics

supply and demand

Goods and Services

Goods and services are

Goods and Services

There are four basic

The principle of scarcity

Supply and Demand Theory

In a free enterprise system,

Supply and Demand Theory

The degree to which

Supply and Demand Theory

Due to the law of

Supply and Demand Theory

Supply and Demand Theory

Supply and Demand Theory

Because supply and

Economic Indicators and Business Cycles

The federal government

Economic Indicators and Business Cycles

There are four stages of the

What Entrepreneurs Contribute

Small Businesses and Entrepreneurial Ventures

After You Read

Define the role of small business and entrepreneurship in the

After you Read

Compare and contrast economic systems.

After you Read

Explain how economics is about making choices.

After you Read

Define the role of economic indicators and business cycles.

After you Read

Describe what entrepreneurs contribute to the economy.

Analyze entrepreneurship from a historical perspective.

The Main Idea

the new venture organization

The History of Entrepreneurship

The History of Entrepreneurship

No job security; move to

The Entrepreneurial Start-Up Process