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Entrepreneurship and Innovation
ENTI 201
Norman Althouse

Chapter 1 January-24-12 11:27 AM PSET model: Political, economic, social & technological environments that interact with business A nation's economic system is the combination of policies, law and choices by it's gov to establish systems that determine what goods and services are produced & how they're allocated In economic systems either government or individuals or a mix choose: -what goods and services to produce, and how much -determine how to produces these goods/services & who will produce them -distribute goods & services to consumers Factors of production: -natural resources: farmland, forests, mineral, oil deposits, water, land… -labor: economic contributions of people with their mind and muscles, can be anything from a restaurant cook to a nuclear physicist, they perform the tasks of manufacturing & selling goods and services -capital: the inputs such as tools, machinery, equipment, buildings. Used to produce goods & services and get them to a customer -entrepreneur: people who contribute to the input of natural resources, labor, capital to produce goods/services to make a profit. They make the decisions for their firm, create products/production processes. They are risk takers -knowledge: the combined talents and skills of the workforce Market economy: (private enterprise or capitalism) an economic system based on competition in the marketplace and private ownership of the factors of production(resources) Refer to p 15 -guarantees the right to own property, right to make a profit, right to make free choices, right to compete -main incentive is profit (necessary for producing stuff, building plants, paying divides/taxes, creating jobs) -competition is good for businesses & consumers. Leads to better & more diverse products, keeps prices stable, increases efficiency Pure market economy: all of the factors of production are privately owned, gov doesn't set prices or coordinate economic activity. Command economy (planned): gov ownership of virtually all resources and economic decision Socialism: economic system in which the basic industries are owned by the gov or by the private sector under strong gov control Mixed economy: combine several different economic systems, ex: where the gov owns certain industries but others are privatized Economics: is the study of how a society uses scarce resources to produce & distribute goods/services Macroeconomics: the area of economics that focuses on the economy as a who by looking at aggregate data for large groups of people, companies or producers Microeconomics: the area of economics that focuses on individual parts of the economy, such as households or firms Circular flow: the movement of inputs & outputs among households, businesses & govs; a way of showing how the sectors of the economy interact Macroeconomics: The Big Picture Economic growth: an increase in a nation's output of goods/services. The more a nation produces, the higher its standard of living. Increased population creates more pollution though, strained public facilities… GDP (gross domestic product): total market value of all final goods & services produced within a nation's border in a year. Reported quarterly & is used to compare trends in national output. When GDP rises, the economy is growing. Rate of growth in real GDP (GDP adjusted for inflation) is also important. When the number slides to zero, the economy starts to stagnate & decline. GNP (gross national product): total market value of all final goods and services produced by a country regardless of where the factors of production are located. Business cycles: upward and downward changes in the level of economic activity. Vary in length, peaks/downfalls & in how much the economy is affected. Increase in business activity results in rising output, income, employment, prices...goes to a peak and then starts declining Recession: a decline in GDP that lasts for at least two consecutive quarters. Followed by a recovery period a when economic activity resumes again. When a recession occurs, firms are not 100% efficient. They produce at less than capacity. Measuring Unemployment Unemployment Rate: the percentage of the total labor force that is actively looking for work but is not actually working Types of Unemployment -frictional unemployment: short term unemployment that is not related to the business cycle, always present, little effect on economy i.e. people re-entering the job market, college grads -structural unemployment: unemployment caused by a mismatch between available jobs & the skills of available workers in an industry or region; not related to the business cycle ex: if birth rates decline, less teachers are needed. Retraining/skill-building programs are often required to reduce structural unemployment -cyclical unemployment: unemployment that occurs during a downturn in the business cycle, when demand for labor reduces -seasonal unemployment: occurs during specific seasons in certain countries. Ie: retail workers hired for the Dec buying season Bsen 291 Page 1 Inflation Inflation: when the average price of all goods and services are rising Purchasing power: the value of what money can buy. Demand-pull inflation: inflation that occurs when the demand for goods & services is greater than the supply. Cost-push inflation: inflation that occurs when increases in production costs push up the prices of final goods/services CPI (consumer price index): an index of the prices of a "basket' of goods/services purchased by consumers. It measures the rate of inflation. Tracks the retail price of an approx shopping basket of about 300 goods/services that consumers buy. Published monthly (includes food, housing, transportation, furniture, clothing, recreation). Prices in the base year are set at 100, current prices are then expressed as a percentage of prices in the base period. PPI (producer price index): an index of prices paid by producers and wholesalers for various commodities such as raw materials, partially finished goods & finished products. Changes in wholesale prices are also indicators of inflation. Changes in PPI may foreshadow subsequent prices changes for businesses/consumers Impacts of inflation: penalizes people who live on fixed i
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