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The Free Enterprise System

Established on several principles:. Freedom of OwnershipCompetitionRiskProfit. Freedom of Ownership. Free to own personal propertyYou can buy anything you want as long as it is not prohibited by law.. Competition. The struggle between companies for customers. Non-Price Competition. Businesses choose to compete on the basis of factors not related to price..

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The Free Enterprise System

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    1. The Free Enterprise System

    2. Established on several principles: Freedom of Ownership Competition Risk Profit

    3. Freedom of Ownership Free to own personal property You can buy anything you want as long as it is not prohibited by law.

    4. Competition The struggle between companies for customers

    5. Non-Price Competition Businesses choose to compete on the basis of factors not related to price. Quality Service Business location Reputation

    6. Price Competition All things being equal, consumers will buy the products that are lower in price.

    7. Monopoly Exclusive control over a product or the means of producing it.

    8. Regulated Monopoly Government has allowed a few monopolies to exist where it would be wasteful to have more than one firm. ie. Telephone, utilities

    9. Risk Potential for loss or failure in relation to the potential for improved earnings

    10. Profit Money earned from conducting business after all costs and expenses have been paid

    11. Economic Cost of Unprofitable Firms: Laying off of employees Investors can lose money Fewer resources with which to conduct business Cut backs on research and development for new products Cut backs on purchase of goods and services needed for operation

    12. Unprofitable firms (cont.) Affects profitability of suppliers Government suffers. Less tax collected, rise in unemployment.

    13. Economic Benefits of Successful Firms: Hire more people and pay them well Employees have better benefits and higher morale Investors earn money, which they spend or invest Vendors and suppliers make more money Government makes more money in taxes

    14. Supply & demand! Supply and Demand determine prices and quantities of goods / services SUPPLY: Amount of goods producers are willing to make and sell DEMAND: Consumer willingness and ability to buy products

    15. SUPPLY greater than demand = Surplus (Overstock.com, scooters) DEMAND greater than supply = Shortages (Superbowl tickets, Gasoline)

    16. equilibrium When amount of a product being SUPPLIED is equal to the amount DEMANDED ……Equilibrium exists!

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