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ECONOMICS

This review explores the three fundamental economic questions and different economic systems. It delves into the characteristics of the free enterprise system, including freedom of ownership, risk, profit, and competition. It also discusses price and non-price competition and touches on the concept of a monopoly.

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ECONOMICS

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  1. ECONOMICS FREE ENTERPRISE SYSTEM & SUPPLY AND DEMAND

  2. Review • Three fundamental economic questions? • Market Economy • Command Economy • Traditional Economy

  3. Free Enterprise System • Free Enterprise System: “A system that encourages individuals to start and operate their own businesses without government involvement” • Which Factor of Production is related to this?

  4. Characteristics of Free Enterprise • Freedom of Ownership • Risk • Profit • Competition

  5. Freedom of Ownership • Freedom of Ownership: “Individuals are free to own personal property” • personal property: car, home, computer • Can do what you want with property • lease, sell or give away • Encourages individuals to own their own businesses

  6. Risk • Risk: “Potential for loss or failure” • What risks do businesses take? • Possibility to be sued • Loss of all personal savings used to start-up the business • Natural disasters

  7. Profit • Profit: “Money earned from conducting business after all costs and expenses have been paid” • Profit is: • motivation for taking risk • reward for taking risk • reward for meeting customer wants and needs • used to pay owners, stockholders • Profit is driving force of free enterprise!

  8. Competition • Competition: “The struggle between companies for customers” • Competition: • essential part of free enterprise • forces businesses to produce better quality products • keeps prices “in-check” • results in wider selection of products and services

  9. Types of Competition • Price Competition: “focuses on the sale price of a product” • Assumption behind this: “if all else is equal, the customer will buy the product with the lowest cost” … WHAT DO YOU THINK? • Non-Price Competition: “focuses on factors that are NOT related to price” • Assumption behind this: “if all else is equal, the customer will buy the product with better quality & closer sales location” … WHAT DO YOU THINK?

  10. Monopoly • Monopoly: “no competition and one company controls the entire market”

  11. Review • Free Enterprise System • Freedom of Ownership • Risk • Profit • Competition • Price Competition • Non-Price Competition • Monopoly

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