Entrepreneurship & the Economy: Definition & Importance

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  • 0:07 Entrepreneurship Defined
  • 0:50 Factor of Production
  • 1:48 Types of Entrepreneurs
  • 3:49 Engine for Growth and…
  • 4:29 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Entrepreneurs fill a vitally important role in market economies. In this lesson, you'll learn about the importance of entrepreneurship, different types of entrepreneurs and how they add value to an economy.

Entrepreneurship Defined

Meet Ernie. Once upon a time he, like most people, punched a clock for a wage. When he wasn't working, he was pursuing his hobby of gourmet cooking. After a particularly trying day at work, Ernie decided to take the leap and become an entrepreneur.

An entrepreneur is a person who takes a risk to start and operate a business. Not everyone is cut out to be an entrepreneur. You need to have entrepreneurship, which is the ability and willingness to take the risk to develop and operate a business for profit or a non-profit organization to serve the needs of a particular group.

Factors of Production

A successful business typically needs to utilize all factors of production, which is just a fancy way of referring to resources necessary to provide a good or service. Take Ernie's new restaurant for example. He'll need all the classical factors of production, which includes land, labor and capital. He needs to either purchase or lease property on which his new restaurant will sit. He'll need to hire people to help him prepare and serve meals. He'll also need capital to finance the new restaurant.

In addition to the 'classic' factors of production, he needs one final factor of production, which he will supply himself - enterprise. Enterprise is the ability to take all other factors of production and use them to create goods or services. Entrepreneurs, like Ernie, provide the enterprise to an economic activity.

Types of Entrepreneurs

Entrepreneurs don't always fit into one neat little category. Let's take a look at different types of entrepreneurs. In her book, Launching New Ventures, Allen identifies different types of entrepreneurs:

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