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

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

3. 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

4. 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

5. Two Basic ways Businesses Compete
Price Competition
NonPrice Competition

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

7. 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

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

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

10. 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

11. 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

12. 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

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

14. 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

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

16. 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

17. 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)

18. 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

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

20. 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

21. 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

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

23. 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

24. 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

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

26. 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

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

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