Profit  Profit is the money left over after the costs of producing a good or service have been subtracted from the revenue gained by selling that good or service.

Producers Seek ProfitsProducers Seek Profits  Example: Coffee shop owners are motivated by the desire to earn profits.  Coffee producers charge the highest price consumers are willing to pay.  What is something worth?  Motivated by profit, other producers enter the coffee business. The profit seeking of producers, then, has helped in the allocation of resources.

Consumers Vote with Their Wallets  When consumers choose to buy a product, the are “voting” for their choice against competing products.  These “votes” help determine what will be produced in the future.  Example: Low-carb foods.

High-Carb Foods ProductUnit Sales, 2003 (in millions) Percentage Change Over 2002 Instant Rice Bulk Rice Cookies1, Regular Carbonated Soda 7, Dry Pasta1, White Bread1, Low-Carb/High-Protein Foods ProductUnit Sales, 2003 (in millions) Percentage Change Over 2002 Frozen Meat/Seafood Meat Snacks Nuts Diet Carbonated Drinks2, Cheese3, Wheat Bread

Modified Free Enterprise Economy  A mixed economy that includes some government protections, provisions, and regulations to adjust the free enterprise system.  The United States, though bases on the market system, is mixed. Government is an important element in the American economic system, but its role is relatively limited.

Government in the Circular Flow Model