Entrepreneurship

Topic Area:Business activity

Sub-topic area   Concept of business activities 

Unit 4                 The market

Key unit competence: To be able to analyse the impact of the different types of markets

Review activity 

Do you recall learning about needs and wants in Senior 1? 

1. What is the difference between primary and secondary needs? 

2. List three different types of goods needed in society. 

3. Identify the factors that influence the consumption of goods and services. 

4. Where do you get the goods and services to satisfy your needs and wants?

Yolande Kagire makes and sells Peace Baskets (Agaseke k’ Amahoro) at a market. Her customers are mainly foreign tourists. Discuss the following: 

1. What is a market? Write a definition using your own words. 

2. What do you call Yolande’s baskets in entrepreneurship? 

3. When do you think Yolande sells most baskets? Explain your answer. 

4. Yolande’s baskets are popular so Gakuru decides to open another basket stall at the same market. How do you think that this will affect Yolande’s business? Explain your answer.

 4.1 What is a market?

 In entrepreneurship, we often talk about markets. You also know about markets from buying goods and services for your family.

When we study markets in economics, the word market has a specific meaning. A market is any environment that exists when buyers and sellers come together to exchange goods and services. You will therefore find a market in a shop. However, a market can also be on the Internet, where buyers buy goods online.

Products

 In economics, a product can be an object like a banana or a book. It can also refer to a service such as a carwash, a haircut or a lesson by an entrepreneurship teacher. When we talk about products in economics we mean both goods and services that consumers want or need.

4.2 What is demand and supply? 

Have you ever wondered why products in the shop cost a certain amount? In economics, we explain the costs of products by using a model called supply and demand.

Activity 4.1 

When Yolande sells her baskets at 1 000 Frw she has many customers. When she sells her baskets for 2 000 Frw, she only sells 10 baskets. 

1. In Mathematics, when two variables are related so that as one becomes larger the other becomes smaller, we say that they are inversely proportional. Consult your Mathematics teacher and write a definition for this term using your own words.

4.2.4 A supply curve 

In economics, we make use of a graph called a supply curve to show the relationship between the price of a product and how many products producers are willing to sell. This curve shows the price on the vertical axis (Y-axis) and the quantity supplied on the horizontal axis (X-axis).

Let us look at an example: If the price is low, then only a few suppliers will sell bananas. As the price increases, more producers will want to grow and sell bananas. The table below shows how many bananas sellers are willing to sell at a certain price. The minimum price that a supplier is willing to sell bananas for is 100 Frw.

Exercise 4.1

 1. Explain the following terms: market, products, demand, supply. 

2. Explain the relationship between price and quantity demanded by consumers. Why is this relationship an inverse relationship? 

3. Explain the relationship between price and quantity supplied by producers. Why is this relationship a direct relationship?

 4. 100 Frw is the minimum price at which producers will supply a product. Why do you think that no one will sell units below this price? (Use your knowledge of accounting and costs and profit in your explanation.)

4.3 The relationship between demand and supply 

Let us say that you want to buy a product. As a consumer you want to pay as low a price as possible. The producer, on the other hand, wants the price to be as high as possible. So which price will you end up paying for the product?

4.5.1 Advantages of domestic market

 A business owner who provides goods and services to a domestic market:

 • understands the local culture and language when communicating with customers

 • knows customers’ tastes and preferences 

• knows if the local economy is growing 

• does not pay import costs and can therefore provide inexpensive goods and services to customers.

Investigate goods in your local store. How many of these are made in your local community? Where do the other products come from? Advantages of making goods in your local community and selling them at your local store are:

• the money goes to the local business, which helps the local market to grow 

• it creates employment because local businesses employ people from the local community 

• the products do not need to be transported for long distances and pollution is therefore reduced

 • food grown locally is fresher than food that has been transported from somewhere else.

Advantages and disadvantages of economic integration 

Some advantages of economic integration are: 

• Increased trade: More goods and services are sold between countries. This creates new business opportunities.

 • Increased employment: When businesses sell more and grow, they also employ more people. 

• Political cooperation: Countries that trade with each other have less political conflict. 

• Increased foreign investment: More foreign currency enters the country

There are also disadvantages to economic integration. If a country does not have a trade agreements with other countries, it can be difficult to sell goods and services in those countries. It leads to the creation of trade barriers to non-members, a decrease in foreign currency entering the country, and movement of skilled workforce out the country.

4.9.3 Economic Community of the Great Lakes Countries (CPEGL) 

The Economic Community of the Great Lakes Countries is a regional organisation. The abbreviation CEPGL comes from its French name: Communauté Économique des Pays des Grand Lacs. It was founded in 1976 and has headquarters in Rwanda. The organisation has three members: Burundi, Democratic Republic of the Congo and Rwanda. Its purpose is to promote trade and economic cooperation in the region. The CEPGL controls several institutions including the Bank of Development of the States of the Great Lakes (BDEGL) and the Economic Community of the Great Lakes Countries Organization for Energy (EGL).

Exercise 4.5 1. 

List the members for the EAC, COMESA and CPEGL in a table.

 2. How does Rwanda benefit from joining economic trade blocs like EAC, CPEGI and COMESA? 

3. What are the disadvantages for Rwanda as an affect of joining economic unions?

 4. Debate the role of economic integration to socio-economic development in Rwanda.

Unit summary

What is a market?

 • A market can be the physical place you buy goods and services. 

• When referring to markets within the economic sense, it means any environment that exists when buyers and sellers come together to exchange goods and services. 

• Demand means the amount of products or services that customers can and want to buy at a given time for a specific price. 

• Law of Demand states that the price of the product increases, consumers will demand less of that product (quantity decreases). As the price of the product decreases, consumers will demand more of that product (quantity increases). 

• A Demand Curve is a graph used to show the relationship between a product’s price and how many product units consumers are prepared to buy.

 • Price is indicated on the y-axis and product unit indicated on the x-axis.

 • The Demand Curve slopes downwards (top left to bottom right), has a negative slope and shows the inverse relationship between price and quantity demanded.

 • Supply means the amount of products that producers will sell at a specific price at a given time. 

• Law of Supply states that when consumers are prepared to pay high prices, there are lots of producers wanting to sell the same product. When consumers are not prepared to pay high prices, there are few producers who want to sell that product. 

• The slope curves upwards from bottom left to top right and illustrates the direct relationship between price and quantity supplied.

 • Price is shown on the y-axis and quantity products on the x-axis. 

• The Supply Curve is a graph that shows the relationship between the price of a product and how many of a product producers are willing to sell. 

• The equilibrium of a product is the price where the product supply and the product demand meet. 

• When the Supply Curve and Demand Curve are drawn on the same graph the market price is where the two curves cross.

Types of markets

 • Markets can be local, domestic, regional or international.

Advantages of domestic market 

• A business owner

• understands the local culture and language when communicating with customers

 • knows customers’ tastes and preferences • knows if the local economy is growing 

• does not pay import costs and can provide inexpensive goods and services to customers 

• creates job opportunities for local communities in local markets.

Disadvantages of a local market 

• Difficult for business to expand because local market is small. 

• If local economy is not going well customers may not buy many products. 

• Imported products and services may be offered at cheaper prices.

 • A regional market is a market in a specific region. People from different countries in that region trade.

Regional market 

• A regional market is a market in a specific region. 

• People from different countries within that specific region trade with one another.

Advantages of a regional market: 

• The market is larger as there are many more people than in a domestic market. 

• When a business grows it benefits the country. 

• A Rwandan business that exports products earns foreign currency (money from another country).

 • Rwanda may enter into agreements with governments from other countries to make trade easier.

Disadvantages of a regional market:

 • There is more competition in a regional market than in a domestic market. 

• If a business from another country grows, then it does not provide jobs in Rwanda. 

• When a business trades in a regional market, goods must be transported to other countries.

Economic integration 

• Economic integration is when different countries agree to lower tariffs, making it easier to allow trade between these countries. 

• Different types of economic integration are: Preferential trade agreement, Free-trade area, Customs union, Economic union.

 • Advantages of economic integration:

 • Increased trade 

• Increased employment 

• Political cooperation 

• Increased foreign investment 

• A disadvantage of economic integration is that it is difficult to trade with another country if there is no trade agreement between the two countries.

Disadvantage of economic integration

 • Difficult to trade with another country if there is no trade agreement 

Regional trading blocs

 • A trade bloc is an agreement that involves the removal of import tariffs. 

• East African Community (EAC) is a large regional trade agreement between Burundi, Kenya, Rwanda, Tanzania and Uganda.

 • Common Market for Eastern and Southern Africa (COMESA) is a trade-free area between 20 African countries. 

• Economic Community of the Great Lakes Countries (CPEGL) is a regional organisation established in 1976 with headquarters in Rwanda.