The Economy Chapter 3 and 4 Free Enterprise

The Economy Chapter 3 and 4

Free Enterprise System/Private Enterprise(Capitalism) � Freedom of ownership – can own business with limited government. � Freedom to compete: Competition is the struggle between two companies for customers.

Types of Competition � Price Competition – Based on who has the best price � Non-price Competition – based on who has the best quality, service, location, reputation

Monopolies � Complete control over a product or means of producing it. ◦ Only allowed for electric, gas, and water companies (utilities)

Risk – Potential for loss or gain � Examples: Lose money in the stock market � Lose money opening a business (one out of three businesses fail in U. S. A. in 1 st year of operation) � New products fail – 85% of new products fail the first year

Economic costs of Unprofitable business � Lay off employees � Lose money � Investors lose money � Stock value falls (loss of money to expand) � Government loses money in taxes � Increase in cost of social services such as Unemployment benefits

Profitable firm benefits � Hire more people and pay them well � Better employee benefits � Investors earn more money � Government makes more money in taxes � More money is spent into the economy

Services our Government Provides � Military � Police � Fire protection � Free public education � Roads and bridges � Public libraries � Medicare � Medicaid

Supporter of business � Provides disaster assistance to businesses after a natural disaster ◦ Example: Hurricane Katrina � Government runs the Small Business Administration – provides counseling and education for new business owners

Supporter of business (cont. ) � The government establishes trade alliances with other countries to encourage trade ◦ Example: U. S. has a trade alliance with Japan �We will buy their products (imports) if they will buy our products (exports)

Regulator of business (consumer and workplace protection) � Occupational Safety and Health Administration (OSHA) - protects against unsafe practices in the workplace � Food and Drug Administration – protects against bad food and drugs � Equal Opportunity Commission - protects against discrimination in hiring based on age, gender, ethnicity, etc.

Consumer and protection (cont. ) � Consumer product safety commission protects against unsafe products on the market � Environmental protection agency – Protects against damage to the environment ◦ Example: Littering is not permitted in our lake/roads ◦ Oil spill

Consumer and worker protection � Securities Exchange Commission – regulates the sale of stocks and bonds

Other business protection laws � Patent- protects against someone stealing someone’s new invention idea � Copyright – protects against someone stealing someone’s music or books � Trademark – protects against someone stealing someone’s brand or symbol

Government’s role as competitor � Amtrak � Tennessee � Post Office Valley Authority

Agency that protects against bad food and drugs Environmental Protection Agency �B. Equal Employment Opportunity Commission �C. Food and Drug Administration �D. Consumer product safety Commission � A.

The agency that protects against discrimination based on age, race, gender, etc. �A. Environmental Protection Agency �B. Equal Employment Opportunity Commission �C. Food and Drug Administration �D. Consumer product safety Commission

All of the following are services our government provides except: . fire protection �B. home insurance �C. roads �D. police Service �A

Having the total control over a product or the means of producing is known as a Risk �B. monopoly �C. disaster assistance �D. competition � A.

The type of competition where you compete on quality, value, and reputation is known as risk competition �B. price competition �C. non-price competition �D. All of the above � A.

All of the following are freedoms that we have in a free enterprise system except: to regulate business �B. to take risks �C. to compete �D. to make a profit � A.

All of the following are examples of ways that our government supports business except: Protecting against unsafe workers �B. Providing disaster relief �C. Establishing trade alliances �D. Having the Small Business Administration � A.

Protecting against someone stealing someone’s brand or symbol is known as a patent �B. trademark �C. monopoly �D. copyright � A.

Protection against stealing someone else’s new product idea: patent �B. copyright �C. trademark �D. Monopoly � A.

Supply and demand � Demand for a product is high the price is typically higher. Example: New cell phone � Demand for a product is low the price is typically lower. Out of season clothing

Demand/Supply concepts � Demand the supply of a product exceeds demand a surplus occurs. Example: Mrs. Harris ordering too many homecoming shirts � When the demand for a product exceeds supply a shortage occurs. Example: Mrs. Harris not ordering enough homecoming shirts. � When supply equals demand it is called the equilibrium point