FREE ENTERPRISE SYSTEM & SUPPLY AND DEMAND ECONOMICS FREE ENTERPRISE SYSTEM & SUPPLY AND DEMAND

Review Three fundamental economic questions? Market Economy Command Economy Traditional Economy

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?

Characteristics of Free Enterprise Freedom of Ownership Risk Profit Competition

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

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

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!

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

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?

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

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