Chapter 2

Entrepreneurs in a Market
Economy
2.1 Entrepreneurs Satisfy Needs and
Wants
2.2 How Economic Decisions are Made
2.3 What Affects Price?

Entrepreneurship: Ideas in Action 6e

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 Lesson 2.3
What Affects Price?
Leaning Objectives
2.3-1 Recognize how supply and demand interact to
determine price.
2.3-2 Describe how costs of doing business affect the
price of a good or service.
2.3-3 Explain the effect of different market structures
on price.

Chapter 2 Entrepreneurship: Ideas in Action 6e

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 How Much Is Enough?

 Supply
 The quantity of a good or service a producer is willing to
produce at different prices
 Demand
 The quantity of a good or service that consumers are willing to
buy at a given price

Chapter 2 Entrepreneurship: Ideas in Action 6e

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 Supply and Demand

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 Supply and Demand (continued)

 When supply and demand meet

 Equilibrium price and quantity: The point at which the
supply and demand curves meet

Chapter 2 Entrepreneurship: Ideas in Action 6e

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 Equilibrium Price

Chapter 2 Entrepreneurship: Ideas in Action 6e

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 Costs of Doing Business

 Fixed costs
 Costs that must be paid regardless of how
much of a good or service is produced
 Variable costs
 Costs that go up and down depending on
the quantity of the good or service
produced

Chapter 2 Entrepreneurship: Ideas in Action 6e

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 Costs of Doing Business (continued)

 Marginal cost
 Measures the disadvantages of producing one
additional unit of a good or service
 Marginal benefit
 Measures the advantages of producing one
additional unit of a good or service
 Economies of scale
 The cost advantages obtained due to expansion

Chapter 2 Entrepreneurship: Ideas in Action 6e

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 Market Structure and Prices

 Perfect Competition
 A large number of businesses selling nearly identical products;
many buyers
 Monopolistic Competition
 A large number of businesses selling different products;
competitive market

Chapter 2 Entrepreneurship: Ideas in Action 6e

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 Market Structure and Prices (continued)

 Oligopoly
 A small number of dominant businesses selling similar
products
 Monopoly
 Only one business selling a product; opposite of competitive
market

Chapter 2 Entrepreneurship: Ideas in Action 6e

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 Questions 2.3

1. The supply curve for a market economy shows that as the price of a product or service rises, suppliers are willing to produce more
of the good or service. T/F
2. The demand curve for a market economy shows that as the price of a product or service rises, individuals are willing to consume
more of the good or service. F/T
3. Demand elasticity occurs when demand for a product is affected by its price. T/F
4. Inelastic demand occurs when a change in price creates more demand. F/T
5. Fixed cost must be paid even if a company has no sales. T/F
6. When the quantity of a good or service produced increases, variable costs remain the same. F/T
7. Marginal benefits measure the advantages of producing one additional unit of a good or service. T/F
8. In a market with perfect competition, a small number of businesses gain the majority of total sales revenue. F/T
9. It is difficult for new businesses to enter a market with an oligopoly market structure. ?

Chapter 2 Entrepreneurship: Ideas in Action 6e

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