Traits of Private Enterprise
Bell work
Google "The American Dream." What are the principles behind it? What are some examples of what it looks like? Cite your source/author. Write your answers on your paper and be prepared to share with the class.What motivates you?
Do you remember when you started caring that you brush your teeth or fix your hair a certain way? What motivated you to start caring? Did you start wanting to be noticed in a positive way by your friends? Maybe you had a crush on someone of the opposite sex and you wanted them to notice you.Maybe you really wanted a pair of certain shoes and you were going to have to buy them with your own money. Did that motivate you to find a job?
Maybe you want to buy a car, but the cost of the car, plus gas, plus insurance made you get a job.
Today we are talking about private enterprise and how it serves as a great motivator for success.
Quote To Think About
" freedoms found in private enterprise make it enticing to be a business owner."
- What are some of these freedoms?
- In what ways might owning your own business take away some of your freedom?
Objectives
- Explain the characteristics of a private enterprise.
- Distinguish between price and nonprice competition.
The basic elements of the free enterprise system include:
- freedom to own property
- freedom to compete
- freedom to take risks
- freedom to make a profit
Let's look at each of the basic elements of free enterprise.
Ownership
In a free enterprise system you are free to own:property (cars, computers, homes)
natural resources (oil, land)
And you are free to do with your own property as you want:
sell it, lease it, give it away (most try to earn income from property ownership)
Give examples of something people own that they purchase for the purpose of making money-
Examples of Ownership:
- Business ownership (zoning laws) What are zoning laws? Entrepreneurs or Investors
- Intellectual Property Rights - Patent, trademark, copyright
Competition
Competition is one of the ways the free enterprise system benefits consumers. Because of competition, businesses must continually find ways to make products better while finding ways to keep prices down so that their customer does not leave them for another company with a superior product/price combination.Price competition - low price used as competitive advantage (sales, rebates, etc.)
Nonprice competition - stress quality, service, location, financing, reliability, reputation, market knowledge, free shipping, etc.
Monopoly - one firm controls the market for a given product or service; not permitted in market economy system because they prevent competition (utilities deregulated so consumers have choice)
Risk
Business risk - the higher the risk, the higher the payoff (1 out of every 3 businesses fail after one year of operation), lawsuits, bad publicity, natural disasters- as industry develops and profits are growing - more competitors enter the market (competition)
- companies that cannot compete face failure
- new products are risky and costly - 85% new products fail within the first year
Case study #1
After over 50 years of business, Circuit City filed for bankruptcy. They were the second largest electronics store after Best Buy.
- How do you think this company's failure affected its employees, the communities where they were located, and it's competitors?
- What advantage did this give Best Buy?
- Do you think there might have been any disadvantages? If so, what might they be?
Profit
Profit is the money earned from conducting business after all costs and expenses have been paid.- The range of profit for most businesses is 1-5%. The rest of the 95-99% goes to pay costs, expenses, and business taxes. (What is 5% of $500?)
- Profit is the motivator for people to take the risk to start a business.
- Profits are good for the economy - encourages people to develop new products and services in the hopes of making a profit.
- Profit remains high when sales are high and costs are kept low (efficiency)
Economic Cost of Unprofitable Firms
- layoff workers
- lower dividends for stockholders lead to selling shares (less resources for firms to do business)
- less tax money for government
- higher unemployment
Economic Cost of Successful Firms
- hire more people
- higher incomes, benefits, morale
- investors earn (spend or reinvest)
- vendors and suppliers make more money
- Government receives more taxes from individuals and businesses
- more donations to charities
- attract competition - benefits the consumers (higher quality, lower prices, better service)
- more spending on luxury items
What do you think?
- If you had just started a small business that was making a profit, what do you think you would do with this money?
- How important is it to our economy that most businesses make a profit? How do we all benefit from their success?
Group Marketing Case Study #2
Read the case study on page 115 about The Polaroid Company.Discuss with a partner: What risk did Polaroid take when it stopped production of the film used in its traditional instant camera knowing it still had a strong following of consumers? Be prepared to share with the class.
