Fresher than fresh snow cones

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Introduction to Business

Professor Maros

Chapter 2 Case Study: Fresher than Fresh - Economics and how businesses can build and distribute wealth

1) Explain how Lindsay obtained the funding to start her business.

In the Fresher Than Fresh (FTF) video, Lindsay explains that she started financing her business out of her own pocket. However, she soon realized that she would incur a lot of expenses because of her desire have her products be 100% organic. She received some financing from investors who wanted to see her business succeed. 80% of these investments were made by local people who trusted in Lindsay and believe that this business was going to be successful.

2) Explain the different economic systems and how Lindsay's business might fare under each one.

According to Better Business (p. 26-27), Capitalism is an economic system that allows freedom of choice and encourages private ownership of the resources required to make and provide the goods and services we enjoy. On the other hand, Communism (p. 26) is an economic system in which a state's government makes all economics decisions and controls all the social services as well as many of the major resources required for the production of goods and services. Finally, Socialism, is defined as a system whereby the government owns or controls many basic businesses and services and the profits from them are distributed evenly among the people.

The FTF video explains some differences that can be found between these economic systems. Capitalism tends to be defined as a free exchange. People are in charge of setting their own prices and promoting their own products. In this economic system people is allowed to keep their profits for themselves. Communism does not provide for private business profits. Socialism allows businesses to keep some profits but they have to pay high taxes so the government can provide extensive public services. It's important to mention that some countries have a mixed economy, where countries can have elements of all three systems.

Lindsay's business works within a capitalist system. She is free to produce her own products and she has the right to keep profits. It's important to highlight the fact that she has to pay taxes as all businesses do. In her case, it would be really hard to develop this business in a socialistic or communistic economy. In a socialistic economy she would have to pay higher taxes that wouldn’t allow her to maintain her businesses profitability. Her costs are high and the price of her product is $3.00 which is not that high to cover all of her expenses (Fresher Than Fresh, video). If Fresher than Fresh operated in a communist economy, Lindsay would be working to receive benefits from her government instead of being able to keep her own profits.

3) Describe Adam Smith's concept of the "Invisible Hand."

According to Investopedia.com, the "Invisible Hand" theory by Adam Smith is defined as an economic phenomenon where a free market itself sets prices based on supply and demand. The belief is that there is no need for intervention from the government or any other institution. This term can relate to Fresher than Fresh because it describes how this business operates in its economic environment. FTF's price is determined by the demand and the supply of the resources available (Fresher Than Fresh, Video). In this case, FTF's success is based on how many customers want to purchase its snow cones. Under the Invisible Hand the business itself will establish a price, set a demand goal and purchase the supplies required to satisfy projected demands.

4) Describe the different forms of competition: Perfect competition, oligopoly, monopolistic competition and monopolies.

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Better Business (p. 35) describes the differences among forms of competition. Perfect competition occurs when there are many buyers and seller of virtually identical products and no barriers of entry. Oligopoly refers to the existence of a few sellers, who have a fairly large share of the market. Monopolistic competition makes reference to many buyers and sellers and little differentiation that exists between products, however, there is a perceived difference among consumers. A monopoly occurs when a provider of a service or a good has control of all or nearly all of its market.

It's pretty important to clarify the difference between these degrees of competition. First, a monopoly describes the situation of a unique business in the market. Oligopoly makes reference to a few businesses who participate in the market, and who own the biggest shares of it. Moreover, monopolistic competition makes reference to a market that has different businesses with similar products but still the consumers notice the difference between them. Lastly, in perfect competition the market has identical products and there are no barriers to enter in the market, which means that anyone can participate (Investopedia).

Based on the information in the video, Monopoly would best describe her business at this stage. She is the only one who has a snow cones business in Kansas, which means that there are no substitutes for her product. She can develop any new ideas without worrying about competition. Of course there are similar businesses, but none of them sell snow cones or produce a 100% organic product. Lindsay has enjoyed much success so far because she has had no direct competition as she is unique in her market.

5) How might Lindsay's business, Fresher Than Fresh be impacted by changes in economic cycles?

The four primary economic cycles are 1) expansion, (2) peak, (3) recession, and (4) recovery. Fresher then Fresh can be impacted in different ways. In expansion and peak Lindsay will be benefit from a good economy that provides opportunities to improve her business. A recession could slow the demand for snow cones and she might lose many of her customers because they will be saving more money and spending less on non essential items.

However, it's important to mention that Fresher Then Fresh would not be overly effected by economic downturns. Even if the economy enters in a recession, Lindsay's product is a simple luxury that people would still be able to afford even in tough financial times. Her products uniqueness, low relative cost, high quality make it an affordable "splurge."

Works Cited

"Fresher than Fresh:Economics: How Business Bulds and Distribute Wealth." Pearson. N.p., n.d. Web. 29 Sept. 2015.

"Invisible Hand." Investopedia. N.p., 20 Mar. 2015. Web. 30 Sept. 2015. .

Solomon, Michael, MaryAnne Poatsy, and Kendall Martin. Better Business. 4th ed. Pearson Education, 2015. Web. 20 Nov. 2015.

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