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

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

3. 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?

4. Characteristics of Free Enterprise
Freedom of Ownership
Risk
Profit
Competition

5. 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

6. 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

7. 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!

8. 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

9. 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?

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

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