Characteristics of market economy
The Resources Needed to Create Wealth
What is needed to create wealth? Within the marketplace, there are many resources that go into the production (input) of goods and services. These resources can be grouped into four categories. These categories are land, labor, capital, and entrepreneurial ability.
The land category consists of not just land, but all natural resources, water and air. Labor is all the work that is performed by man. Capital is industrial machines and buildings, not financial capital (money is not capital by this definition). Finally, there is a special resource called entrepreneurial ability. It is the entrepreneur that organizes and arranges the use of land, labor, and capital to create an output demanded by the marketplace. It is the entrepreneur’s responsibility to decide on what amounts of each resource to use and then use those resources efficiently to create a product or service that is valued higher by the marketplace than the value of the resource inputs.
The Law All Entrepreneurs’ Must Understand
The second concept that is essential for all entrepreneurs to grasp is that of supply and demand.
To determine this equilibrium price and quantity of widgets, let’s put the demand and the supply curves together on the same graph. Now, if demand increases, the price and quantity supplied will also increase. If supply increases, perhaps due to a new technological innovation, widgets will be less scarce and the price will go down and output will go up. These are the laws of supply and demand.
There are three important lessons which each entrepreneur has to know when he is starting his own business Lesson One: How to Price Your Products
If you charge too much you may make a large per product profit but not make many sales. Vice versa, if you charge too little you may make many sales but little profit or perhaps a loss. You likely will not have the resources to hire a team of Ph.D’s to do...
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