1. Identify and explain the 5 characteristics of Free Enterprise Capitalism.
Economic freedom: free to buy what you want, choose your occupation, your employer, and your job location. Voluntary exchange: the act of buyers and sellers freely and willingly engaging in market transactions. Private property: allows people to own and control their possessions as they wish. Profit motive: people are free to risk any part of their wealth in a business venture. Competition: the struggle among sellers to attract consumers with the best products at the lowest prices.

2. What are the benefits of Free Enterprise Capitalism?
Individual freedom Variety of goods Adapting to change Promoting progress Creation of wealth

3. What are the disadvantages of Free Enterprise Capitalism?
Uneven economic growth: sometimes growth is fast and other times it is slow. Growing gaps between rich and poor: rich seem to get richer and poor seem to get poorer. Large “supply-side” tendencies: firms will combine and reduce competition. Rights and responsibilities of business: businesses must follow government regulations and consumers are protected by government rules.

4. How does the American economy incorporate the main characteristics of a free enterprise economy?
The American economy allows individuals to purchase what they want, work where they want, and change jobs when they want. Businesses can make whatever products they wish and sell them at any price. Buyers and sellers can exchange money for products, but no one is forced to buy or sell. People and corporations own property and can buy it, sell it use it to borrow money, or to make a profit. People have the right to make a profit. Most businesses operate in competition with other businesses.

5. What regulation was established in 1972 to ensure that businesses take responsibility for the products they produce?
The Consumer Product Safety Commission was established to protect consumers from poor manufacturing and to make sure that products met quality and safety standards.

6. How does government help business provide the goods and services that people need and want?
The government maintains the infrastructure that businesses need to create and transport goods. The government also defends the nation, and thus businesses, against foreign aggression. The government also subsidizes vital goods, such as agricultural products. The government writes and enforces some regulations on businesses to protect consumers against unfair practices or unsafe products.

7. What roles do consumers and entrepreneurs play in a free enterprise system?
Consumers play the crucial role of “judge” by purchasing the products and services that best meet their needs. In this way, consumers determine which products are sold and which businesses succeed. Entrepreneurs create new businesses that provide new jobs. They often develop innovative products and services that may spread through the economy and open up opportunities for even more new businesses.

8. How is the role of government determined in the American free enterprise system?
The public and legislators decide if government is needed to subsidize vital products, to ensure the safety of products or fairness in business practices (regulation). To provide the infrastructure in which businesses can operate.

9. Why has the free enterprise system been modified to include some government intervention?
Government intervention is needed to ensure fair competition and to protect the public safety. Examples: purity of pharmaceuticals and vehicle safety.

10. Describe the terms economic freedom and economic efficiency.
Economic freedom is that consumers are free to choose what to buy, their jobs, their employers, what they use their money for. Business owners can choose when, where, and what they produce. Economic freedom is one of the cornerstones of American society. Economic efficiency means that resources are scarce and that factors of production must be used wisely. If resources are wasted then fewer goods and services can be produced. Fewer wants and needs can be satisfied if there are fewer resources.

11. Explain what inflation is.
Inflation is a rise in prices that particularly affects those on a fixed income. More money is needed to purchase food, clothing, and shelter. Bills are harder to pay and planning for the future is more difficult.

12. How are conflicts among economic goals resolved?
Conflicts over economic issues are usually resolved by voters voting for the candidate that shares their views. The U.S. economic system is flexible, and it accommodates compromises that satisfy the majority of Americans.

13. How might government programs increase people’s economic security?
Government programs can provide a safety net to keep people from becoming destitute. The U.S. government established Social Security, which is a program of disability and retirement benefits. The U.S. government also established Medicare, a health insurance program for senior citizens.