Chapter 3 Review Free Enterprise Economics

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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