Chapter 3 Review Free Enterprise

1. Chapter 3 ReviewFree Enterprise Economics

2. 1 • In a free enterprise economy, how is the following question answered. What goods will be produced? • Producers produce what consumer want to buy.

3. 2 • How will goods be produced in a free enterprise economy? • By individuals who own and manage businesses.

4. 3 • For whom will goods be produced in a free enterprise economy? • The consumers who are willing to buy them.

5. 4 • Under the right of ______ the government can take ownership of land without the consent of the owner. • Eminent domain

6. 5 • How does competition among producers benefit consumers? • Lower prices • Better variety of products • Product improvements

7. 6 • List an economic incentive the federal government offers to citizens? • Tax breaks for home ownership, student loans

8. 7 • The amount of money left over after all the costs of production have been paid. • Profit

9. 8 • The amount of money by which total costs exceeds total revenue. • Loss

10. 9 • Any good that is owned by an individual or business. • Private property

11. 10 • The principles of conduct, such as right and wrong, morality, and immorality, good and bad. • Ethics

12. 11 • List an argument for why free enterprise is an ethical economic system. • People can choose • Variety of products • Rewards depend on performance • Freedoms

13. 12 • List a reason against the free enterprise economic system. • Income inequality • Too much power to large corporations

14. 13 • A person who has a special talent for searching out and taking advantage of new business opportunities, as well as developing new products and new ways of doing things. • Entrepreneur

15. 14 • An agreement between two or more people to do something. • Contract

16. 15 • A public good that individuals can be physically prohibited from consuming. • Excludable public good

17. 16 • Give an example of a nonexcludable public good. • National defense

18. 17 • A person who receives the benefits of a good without paying for it. • Free rider

19. 18 • An adverse side effect of an act that is felt by others. • Negative externality.

20. 19 • Any good that is owned by the government. • Public property

21. 20 • Give an example of a negative externality. • Neighbors who fail to maintain their property • Loud music • Pollution

22. 21 • A beneficial side effect of an action that is felt by others. • Positive externality.

23. 22 • The price of a good times the number of units of the good sold equals________. • Total revenue

24. 23 • Give an example of an excludable public good. • Lecture at a college – if you aren’t accepted or don’t pay tuition

25. 24 • A(n) _______ is something that encourages or motivates a person toward an action. • Incentive

26. 25 • A public good that individuals cannot be physical prohibited from consuming. • nonexcludable public good

27. Final Question • List 5 important features of free enterprise. • Private property • Choice • Voluntary exchange • Competition • Economic incentives