Chapter 3

 the-high-cost-of-low-price/ the-high-cost-of-low-price/

 Capitalism is an economic system based on the private ownership of the factors of production  Capitalist system is known as a free enterprise system, anyone to start a business or enterprise for a profit  new-business/ new-business/

 Government has little interference in free enterprise ◦ Protect or encourage competition ◦ Enforce contracts  Public Interest Theory – protect consumers from fraudulent, inferior, and unsafe products  Public Choice Theory – government benefit existing industries by make it more difficult for new business enter into market  Tollbooth Theory – main beneficiaries of the regulations are politicians

 Private property is a freedom we enjoy in the U.S. We are able to buy and sell at will.  Open Opportunity is another freedom in our economy ◦ Each person has a free choice to enter into the market industry  This gives everyone the same economic rights under the law called Legal Equality ◦ Fail or succeed

 Another element is Free Contract, a choice of agreement to enter into  The most ideal reason for entering into free enterprise is profit motive. ◦ The ability to exercise the act of earning financial wealth from economic activities  Page 74, Figure 3.2 ◦ What legal rights are built into the free enterprise system? 

 What is the difference between open opportunity and legal equality?  What beside profit, if anything, might motivate a person to start a business?  What fads like the pet rock have you seen come and go?  What do these fads show about free enterprise?

 Where will you open your restaurant? Pg. 75 ◦ What are the advantages of being in the first location, the busy mall? What are the disadvantages? ◦ What are the advantages and disadvantages of the second choice, in the small strip mall?

 Reviewing Key Concepts questions 1-5  Critical Thinking question 7  How Can Entrepreneurs Control Costs? Activity  Joslin’s Cost of Doing Business  Is More Always Better?

 Which entrepreneur is in a better position to control fixed costs of production if there is a decline in the demand for bats-the entrepreneur with the automated bat-production machine or the entrepreneur who provides bats made by hand? What does this show about fixed and variable costs?

 The Roles of Producers and Consumers  Consumers looks for the best deal for their money  While the Producers are looking to make the most profit

 Profit is the reason why individuals take the risk to enter entrepreneurship and allocate scarce resources  Consumers assist in allocating resources by choosing the products they want. This is considered “voting”

 Modified Free Enterprise Economy ◦ Some government involvement  Figure 3.4, page 80 ◦ Government in the Circular flow Chart  The government is a producer and consumer in the Product Maker (buying products), Factor Market (buying resources), Businesses, and Households (good and services by collection of taxes)

 Reviewing key concepts questions 1 – 4  Critical Thinking question 10

 Only the buyer and seller involved in the interaction bears the cost or reap the benefits, this is considered a Normal Market Function  However, if a buyer and seller, not involved in the interaction, benefit or pay part of the cost, it is considered a Market Failure  Then government provides the goods and services to be consumed are called public goods. The government collects taxes to pay for these goods such as national defense.

 There are many who do not pay for a service or good however benefits from it is called free rider.  Example: Fire works for holiday and law enforcement

 Public and Private sector share the feat of the infrastructure that benefits a smooth functioning of society, such as ◦ Highways, mass transit, power, water, sewer systems, education, and health care

 Market Failure ◦ Externality is a side effect of a product ◦ Negative externality is imposing cost on individual that are not involved  Industrial pollution ◦ Positive externality creates benefits for people who were not involved  Subsidy – government payment paid through the collection of taxes

 Government provides programs that benefit the elderly and the less fortunate from economic hard time through a public safety net  Redistributing income ◦ Poverty level  Economic growth  Transfer payments – transfer income from one group to another group without providing any contribution  Public Transfer Payments is a payment in which the government transfers income from taxpayers to recipients who do not provide anything in return  Command economy (U.S. mixed economy)

 Reviewing Key Concept questions 1 – 5  Critical Thinking questions 7, 8, and 9