Chapter 3Entrepreneurs In a Market Economy
Textbook online

In a market economy, private companies produce goods and services to earn profits. However, the government sometimes must regulate the behavior of companies to protect consumers and employees. The link below provides information about business compliance with government regulations. Read the article to answer the following questions.

Please enter your answers to questions 1-4 as a comment under this entry.

Entrepreneurs in a Market Economy Ch.3 Critical thinking questions

Based on the readings, activities and writings from chapter 3, please answer the following questions:

1. If the price of a product is set below the equilibrium price, what happens to demand? What happens to supply?


2. Markets for new products often are monopolies. Why do you think this is so? Can you think of examples of markets for new products (past or present) that are monopolies?


3. What do you think the fixed costs and the variable costs would be for a movie-rental business?


4. You are planning to start a day-care business for children. What government regulations might impact your business?

The Small Business Association report to the president on the economy effects to the Small Business Administration

Dear Mr. President:

The Offi ce of Advocacy of the U.S. Small Business Admin istration
is pleased to present The Small Business Economy: A
Report to the President. In 2003, the overall economic indicators
improved as the recovery gained momentum. Small businesses
have led the way. However, continued strong growth requires an
environment that fosters more small business activity.
During a recent conference organized by the Offi ce of Advocacy,
Treasury Secretary John W. Snow noted that it is important
for government to create an environment where entrepreneurship
can thrive. Much of this year’s report focuses on regulations.
That is no accident. This offi ce enforces the Regulatory
Flexibility Act of 1980, as amended by the Small Business
Regulatory Enforcement Fairness Act of 1996. Moreover, your
Administration has been a supporter of reducing regulatory
burden for small businesses; and in August 2002, you signed
Executive Order 13272, recognizing that federal agencies need
to consider small fi rms when drafting new federal rules.
Two studies from the Offi ce of Advocacy highlight the disadvantages
faced by many entrepreneurs when it comes to
government rules and regulations. First, in 2001, W. Mark
Crain and Thomas D. Hopkins found that small fi rms with
fewer than 20 employees pay nearly 60 percent more to comply
with federal regulations than their larger counterparts
with more than 500 employees. Small business owners often
lack the time and ability to monitor the mountain of new federal
regulations that may affect them, and compliance often
means hiring a professional to act on their behalf. Second, we
know that home-based businesses are a sizable portion of the
U.S. economy, and yet regulations at all levels of government
hamper them, according to research by Henry Beale.
ii The Small Business Economy
The Offi ce of Advocacy works diligently to ensure that small
business owners have a say in the federal regulatory process. In
fi scal year 2003, for instance, Advocacy’s involvement resulted
in more than $6.3 billion in regulatory cost savings for small
entities. Yet, this is only part of the picture. Small fi rms also face
regu latory burdens at the state level. In December 2002, the
Offi ce of Advocacy developed model legislation to encourage
states to adopt regulatory fl exibility initiatives. The result has
been a groundswell of support from governors and state legislators.
Recognizing that small businesses can be engines of growth
and new jobs, several states have adopted this legislation or have
issued executive orders that recognize small business burdens in
the rulemaking process.
State leaders also recognize the importance of innovation to
economic growth. Advocacy research shows that new fi rms are
created around universities that devote more dollars to research
and development. Therefore, research institutions generating
new patents can enhance their local economies through “spinoff
” ventures. Earlier this year, Advocacy funded a conference
at Case Western Reserve University that explored governmentuniversity
partnerships that promote entrepreneurship, and
a paper from that conference discussing technology transfer
appears as Chapter 3 in this volume.
Finally, there were clear signs of macroeconomic improvement
in 2003, especially in the second half of the year. A growing economy
means that more small business owners will prosper. Through
your leadership, we will continue to focus on issues designed to
create an environment where entrepreneurship can fl ourish.
Thomas M. Sullivan Chad Moutray
Chief Counsel for Advocacy Chief Economist
Acknowledgments iii
The Small Business Economy: A Report to the President was prepared
by the U.S. Small Business Administration, Offi ce of Advocacy.
The Chief Counsel for Advocacy is Thomas M. Sullivan; the
Deputy Chief Counsel is Shawne McGibbon. The Chief Economist
is Chad Moutray, the Director of Interagency Affairs is
Susan Howe, the Director of the Offi ce of Information is Jody
Wharton, and the Director of Regional Affairs is Viktoria Ziebarth.
The project was managed by Kathryn J. Tobias, senior editor.
Special thanks to Robert Kleinsteuber for editorial review. Specifi c
sections were written or prepared by the following staff:
Chapter 1 Brian Headd, Charles Ou, and Major Clark
Chapter 2 Henry Beale, of Microeconomic Applications, Inc.,
with Radwan Saade
Chapter 3 Scott Shane of Case Western University
Chapter 4 Carrol Barnes and Advocacy Offi ce
of Interagency Affairs
Chapter 5 Viktoria Ziebarth and Jaime Willis
Appendix A Brian Headd
Appendix B Chad Moutray
The Offi ce of Advocacy appreciates the interest of all who reviewed
the report. Thanks are also extended to Jodi Bloom, Kristen Argenio
and Jessica Snyder of DesignFarm and to the U.S. Government
Printing Offi ce for their assistance.
Acknowledgments