CHAPTER 5The Free Enterprise System

SECTION 5.1MARKET ORIENTED ECONOMIC SYSTEMS

Objectives Explain the characteristics of a free

enterprise system Distinguish between price and

nonprice competition Explain the theory of supply and

demand

BASIC PRINCIPLES

Free Enterprise System ~ Encourages people to start & operate their own business without government involvement.

BASIC PRINCIPLES

Freedom of Ownership ~ Free to own property, cars, computers, homes, etc……

BASIC PRINCIPLES Intellectual Property Rights ~ Are protected in a free enterprise system. Patents ~ On an invention, you alone

own the rights to that item or idea. Trademark ~ Is a word, name, symbol,

sound or color that identifies a good or service & cannot be used by anyone but the owner.

Copyright ~ Anything that is authored by an individual such as writings, music & artwork.

BASIC PRINCIPLES Competition

Is essential for a Free Enterprise System

Forces better-quality goods & services

Price Competition ~ Focuses on the sale price of a product.

Nonprice Competition ~ Businesses compete on the basis of other factors such as quality of product, service, location & reputation.

BASIC PRINCIPLES Competition

Monopolies ~ Exclusive control over a product or the means of producing it.

Business Risk Potential for loss or failure One out of every three businesses fail Risk of being sued or having name

tarnished Natural Disasters Risk when new product is developed

PRODUCT DEVELOPMENT RISKS

Bill Cosby introduces the new Coke (1985)

Bill Cosby NEW Coke Commercial 1985

1985 Pepsi commercial- "They changed my Coke"

BASIC PRINCIPLES

Profit Is the money earned from conducting

business after all costs & expenses have been paid.

Is the MOTIVATOR, REWARD, More Efficient Economic Costs of Unprofitable Firms

Layoff People Less Taxes Paid Everyone Impacted

BASIC PRINCIPLES

Profit Economic Benefits of Successful

Firms More People Hired Possible Higher Income More Taxes Paid Win/Win Situation Generates More Competition

BASIC PRINCIPLES

Supply & Demand Supply ~ The amount of goods

producers are willing to make & sell Law of Supply

Demand ~ Consumer willingness & ability to buy products Law of Demand

BASIC PRINCIPLES

Supply & Demand Surpluses ~ When supply exceeds

demand. Shortages ~ When demand exceeds

supply, shortages of product occur. Equilibrium ~ When amount of a

product being supplied is equal to the amount being demanded.

SECTION 5.2BUSINESS OPPORTUNITIES

Objectives Compare for-profit & nonprofit

organizations Distinguish between the public &

private sectors List the major types of businesses in

the industrial market

TYPES OF BUSINESS

Size & Scope Small Business ~ Fewer than 100

Employees 95% of Businesses in US are Small

Business

Large Business ~ More than 1000 Employees

TYPES OF BUSINESS

Size & Scope Domestic Business ~ Sells products

only in the country they are in. Limits the company growth & possible

profit.

Global Business ~ Sells all over the world. Internet has made a huge impact on

this.

TYPES OF BUSINESS

Purpose For-Profit Business ~ Goal is to make

a profit. Nonprofit Organization ~ Uses money

to fund the cause. Public Sector ~ Schools, City

Business, Government Agency Private Sector ~ Everything Else

TYPES OF BUSINESS

Industry & Markets North American Industry

Classification System (NAICS) ~ How businesses are classified

Derived Demand ~ Based on demand for consumer goods & services. Example supplying auto parts. (Trickle down)

TYPES OF BUSINESS

Industry & Markets Wholesalers ~ Receives goods from

manufacturer then sells onto retailer. Retailers ~ Buys goods from

wholesalers.

THE FUNCTIONS OF BUSINESS

Four main functions of a business Functions are ESSENTIAL for a

business to continue All Four functions must be

performing well or possible failure of business

SOUND FAMILIAR???

THE FUNCTIONS OF BUSINESS

Production & Procurement Production ~ The process of creating,

expanding, manufacturing or improving on goods or services.

Procurement ~ Buying & reselling goods that have already been produced.

THE FUNCTIONS OF BUSINESS

Production & Procurement SWOT Analysis

The five “rights” of merchandising are having…. The right goods At the right time In the right place At the right price In the right amount

THE FUNCTIONS OF BUSINESS

Marketing The Role of Marketing Activities

The time period from producer to consumer is considered marketing activities.

THE FUNCTIONS OF BUSINESS

Management Management ~ The process of

achieving company goals by effective use of resources.

THE FUNCTIONS OF BUSINESS

Finance & Accounting Finance ~ is the function of business

that involves money management. Accounting ~ is the discipline that

keeps track of a company’s financial situation.