1. Characteristics of Free Enterprise
Chapter 3

2. How does free enterprise answer the three economic questions
What goods will be produced?
How will the goods be produced?
For whom will the goods be produced?

3. Circular Flow of Economic Activity

4. 5 Characteristics of Free Enterprise
Private Property
Choice
Voluntary Exchange
Competition
Economic Incentives

5. Laws, Institutions, and Regulations
Legal systems can help or hinder free enterprise
In U.S. laws have been developed to regulate banking and promote private property, which helps promote free enterprise

6. Profits and Losses Total revenue = price x number sold
Total cost = avg cost of good x number sold
Profit = Total revenue > Total cost
Loss = Total cost > Total Revenue

7. An Ethical Economic System

8. Economic Principles in Key Documents
Bill of Rights
Declaration of Independence
The Constitution

9. Economic Rights and Responsibilities in a Free Economy
Open disclosure
Obeying the law
Being truthful

10. Entrepreneurs
Has a talent for searching out and taking advantage of new business opportunities
Develops new products
Uses new ways of doing things

11. Profit and Risk Entrepreneurs expect to earn a profit.
Entrepreneurs would not be willing to take a risk if they couldn’t expect a benefit.

12. The role of government in Free Enterprise
Government as Enforcer of Contracts
Government as Provider of Nonexcludable Public Goods
Such as National Defense
No one wants to pay for such goods, therefore it falls on the government
Paid for by taxes

13. Externalities Third party effect Can be positive or negative
Governments duty to minimize negative externalities
Court system
Regulation
taxation