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1-4 Business and Economic Environments [CH 1

Entrepreneurs: their role and reward

entrepreneur In the private enterprise system an entrepreneur is a risk taker; a person who
A person who takes the seeks a profitable opportunity and then devises a plan, forms an organization, and
financial risk necessary to then engages in those activities to achieve that objective. The role of entrepreneurs is
organize and manage a as a ‘calculated’ financial risk taker, and their reward is the profit that they earn from
business and receive the their risk.
profit and non-profit rewards
in the private enterprise There are those who think of the entrepreneur, being a risk taker, as a “gambler.”
system. They are not. What they do is simply find a need and fill it. They have to make a
profit to continue to fill that need, but they are in no way a “gambler.”
To consider the differences of being an entrepreneur and a “gambler”, one only
needs to look at the gaming casino’s. It is the “gambler” who pays for the lavishness

of the casino. The casino owners are entrepreneurs.
Some entrepreneurs establish new companies and ventures; others revitalize going
concerns. The entrepreneurial spirit lies at the heart of the American economic
system. Without the willingness to take risks, while looking for a profit, there would
be no successful businesses, and the private enterprise system could not exist.

capitalism The Functions of the Private Enterprise System
Defines an economic system The private enterprise system has its genesis in capitalism, which is founded on
that function on the principle the principle that competition among firms for customers best serves the needs of
that competition among society. When competition is eliminated, or extensively regulated, the needs of
businesses best serves society will be confronted with inferior products, product shortages, and increased
society.
production costs that result in higher prices that the consumer pays.
Adam Smith, an ordained Presbyterian minister and university professor, is often
called the father of capitalism. He first described the process of competition in his
book An Inquiry into the Nature and Causes of the Wealth of Nations, published in
1776. Smith recognized and stated in his book, Wealth of Nations, an economy is best
invisible hand of regulated by the invisible hand of competition. By this he meant competition among
competition
Adam Smith's description of firms would assure that consumers received the best possible products at the best
how competition regulates possible price because the inefficient and inferior producers are gradually eliminated
the private enterprise from the marketplace.
system. The "invisible hand" concept is the basic premise of the private enterprise system,
competition being the primary regulator of our economic life. Sometimes, however,

antitrust laws the public, through its elected representatives, has passed laws designed to strengthen
Laws that prohibit attempts the role of competition. These laws, called antitrust laws, prohibit attempts to
to monopolize or dominate a monopolize, or dominate at the exclusion of others, a particular market. Two antitrust
particular market. laws are the Sherman Antitrust Act (1890) and the Clayton Act (1914). Antitrust
legislation prohibits efforts to monopolize markets and preserves for society the

advantages of competition. Business is also subject to an array of government
regulations that influence the way firms operate. As a caution, there are those who
agitate for government controls in pricing; the effect is that those current producers
become monopolies, and the innovators are excluded. Nobody works for free, and all
need to receive the reward (remuneration/profit) for their work. What price controls
do is cause government to sanction the large diversified companies who can “hold

out” until their competition is eliminated. Then lobby for regulation changes based on
the experienced shortages in supply, and lobby for changes in how products are
Private enterprise system: produced. Then their prices rise with their exclusivity to the market.
an economic system where
both the resources Foundational Rights for the Private Enterprise to function
necessary for production and A private enterprise system (capitalism) is an economic system where both the
the business are owned by
private individuals not by resources necessary for production and firms are owned by private individuals, not by
public institutions like the public institutions like the government. As an economic system it rewards
government. Private entrepreneurs for their ability to identify and serve the needs and demands of their
enterprise is based on four customers. This system minimizes government interference in economic activity.
principle or rights: the right to In order for capitalism to properly function in a private enterprise economy, there
private property, freedom of
choice, profits, and are certain inalienable rights that must exist uninhibited, that is not infringed upon.
competition. They include the right to private property, the freedom of choice, the right to keep
profits, and the right to compete (to freely enter into a market without hindrance).

Learning to Do, Doing to Learn, Earning to Live, Living to Serve
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