Our Free Enterprise System Marketing Ch. 3 Our Free Enterprise System

Basic Principles Free Enterprise System Individuals should have freedom of choice Encourages individuals to start and operate their own business without government involvement.

Freedom of Ownership You have the right to own your own business however there are some restrictions on how and where those businesses may operate. Zoning laws

Competition Struggle between companies for customers Healthy and vital to our free enterprise system Help motivate people to improve themselves Forces businesses to produce better-quality goods and services at a reasonable price. Develop new products and improve old ones Wider selection of a product to choose from

Two Basic ways Businesses Compete Price Competition NonPrice Competition

Price Competition Focuses on the sale of a product Assuming all things are equal – Customers will purchases the product that has the lowest price.

Nonprice Competition Businesses choice to compete on the basis of factors that are not related to price Quality of product Service and financing Business location Reputation Qualifications and expertise of their personnel

Monopolies Exclusive control over a product or the means to produce one. When there is no competition and one firm controls the market Prohibited

Risk Risk is the potential for loss or failure Perceived in relation to the potential from improved earnings

Profit Money earned from conducting business after all costs and expense Provides the incentive for people to risk their own money Profit for most businesses is 1-5% of sales

Economic Cost of Unprofitable Firms First thing they do is lay off employees Investors lose money if the value of their stock falls below what they paid for it. Fewer resources Cuts back on research and development of new products Government suffers because businesses pay less taxes Unemployment ups the cost for social services

Economic Benefits of Successful Firm Hire more people and pay them well Investors earn money, which in turn they spend or reinvest Vendors and Suppliers make more money Government receives more in individual and business taxes Companies contribute more to charities Attract more competition

The Role of Government Government plays four roles in our free enterprise system: Provides general services Supports businesses Regulates businesses Competes with private businesses

Provides general services Our government provides: Military Police and Fire protection Free public education Retraining for people who have lost their job Joint Training Partnership Act Builds and supports the building of roads and bridges

Provides general services Our government provides: Public Library Social welfare system Medicare Elderly Medicaid Poor

Supporter of Business Supports business in times of crisis Government guaranteed loans to auto industry Disaster assistance Floods and earthquakes Small Business Administration (SBA) Provides counseling and educational materials to prospective business owners to help insure success Loan guarantees Establish trade alliances and agreements with other countries

Regulator Make laws designed to protect the safety, health, and welfare of individuals Consumer and Worker Protection Laws are carried out by regulatory agencies Food and Drug Administration (FDA) Equal Employment Opportunity Commission (EEOC) Occupational Safety and Health Administration (OSHA) Consumer Product Safety Commission (CPSC)

Regulator Consumer and Worker Protection Environmental Protection Agency (EPA) Local Zoning Ordinances to help protect the value of residential real estate Securities and Exchange Commission (SEC) Licensing of brokerage firms and financial advisors

Regulator Consumer and Worker Protection State and local level Require licensing of people Health department Minimum wage $7.70 Minimum wage flyer

Regulator Business Protection Patents To protect our private property rights, governments provides laws and regulation regarding: Patents Exclude other from making, using, and/or selling the invention for 20 years Copyrights © Giving creators of original work the exclusive rights to it for Life of the author plus 50 years Trademarks Distinctive sign or indicator used by business organization Typically a word, slogan, symbol, design, or image

Regulator Business Protection To protect our private property rights, governments provides laws and regulation regarding: Trademarks Distinctive sign or indicator used by business organization Typically a word, slogan, symbol, design, or image Unregistered Trademarks ™ Registered Trademarks ® They last indefinitely

Regulator Business Protection Licensing agreement To protect our private property rights, governments provides laws and regulation regarding: Licensing agreement Protects originators name and product

Regulator Business Protection Sherman Antitrust Act Prevents monopolies Outlaws all contracts and agreements that restrain free trade or limits competition Clayton Antitrust Act Created the Federal Trade Commission (FTC) Included investigations of deceptive and misleading business practices like false advertising

Regulator Business Protection Federal Reserve System Government monitors our economy and controls our monetary supply When the economy is improving or moving to slowly it reacts Prices going up to fast – Increase interest rates Prices moving to slow – Decrease interest rates

Competitors US government runs three business operations: Tennessee Valley Authority U.S. Postal Service Amtrak Also run national parks and campgrounds

Role of the Consumer Consumers do two major things in the marketplace Pick the winner that will be in the marketplace tomorrow Determine how much demand there is for any given product and helps determine prices

Deciding Which Businesses Survive Consumers decide which products will be produced and which companies will stay in business This is done by shopping

Determining Prices When supply and demand interact, they create: Surplus – supply exceeds demand Shortages – Demand exceeds supply Equilibrium – Supply and demand equal