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 1st 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 Valley Authority Post Office

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

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: A. fire protection B. home insurance C. roads D. police Service

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

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

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

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

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

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

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