1. Marketing Essentials Section 3.1 Capitalism
n Chapter 3 The Free Enterprise System
Section 3.1 Capitalism

2. Capitalism SECTION 3.1 Basic principles of a free enterprise system
What You'll Learn
Basic principles of a free enterprise system
The role of competition
The importance of risk and profit

3. SECTION 3.1
Capitalism
Why It's Important
In this chapter, you will develop an understanding of how our economic system operates. You will learn how prices are determined, as well as what roles the government and consumers play in the free enterprise system.

4. Capitalism SECTION 3.1 free enterprise system competition
Key Terms
free enterprise system
competition
price competition
nonprice competition
monopoly
risk
profit

5. Capitalism SECTION 3.1 Basic Principles
In the United States, we have the freedom to make decisions about where we work and how we spend our money.
A free enterprise system encourages individuals to start and operate their own businesses.

6. Capitalism SECTION 3.1 Freedom of Ownership
Individuals in our free enterprise system are free to own personal property, such as cars, computers, and homes, as well as natural resources such as oil and land. You can buy anything you want as long as it is not prohibited by law.
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7. Capitalism SECTION 3.1 Freedom of Ownership
In a free enterprise system people are encouraged to own businesses, but there are restrictions on how and where businesses may operate.
Businesses that make things may be forced to comply with certain environmental measures.
Businesses may be restricted in where they can locate.
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8. Capitalism SECTION 3.1 Freedom of Ownership
If you get a patent on an invention, anyone who wanted to manufacture your product would have to pay you for its use through a licensing agreement.
Example: A T-shirt manufacturer gets a licensing agreement with the NFL to produce NFL logo T-shirts.
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9. Capitalism SECTION 3.1 Competition
Competition is the struggle between companies for customers. Competition is an essential part of a free enterprise system. It forces businesses to produce better quality goods and services at reasonable prices.

10. Capitalism SECTION 3.1 Price Competition
Price competition focuses on the sale price of a product. The assumption is that, all other things being equal, consumers will buy the products that are lowest in price.
Example: Wal-Mart advertises "Always the Lowest Price—Always."

11. Capitalism SECTION 3.1 Nonprice Competition
In nonprice competition, businesses compete based on
the quality of the products, service and financing
business location
reputation
the qualifications or expertise of their personnel

12. Capitalism SECTION 3.1 Monopolies
When there is no competition and one firm controls the market for a given product, a monopoly exists.
Monopolies are not permitted under a free enterprise system because they prevent competition.

13. Capitalism SECTION 3.1 Risk
Risk is the potential for loss or failure in relation to the potential for improved earnings.
As the potential for earnings gets greater, so does the risk.

14. Capitalism SECTION 3.1 Profit
Profit is the money earned from conducting business after all costs and expenses have been paid.
Profit is the engine that drives a free enterprise system.

15. Capitalism SECTION 3.1 Economic Cost of Unprofitable Firms
Unprofitable businesses lay off employees.
Their stock prices fall, so they have fewer resources and investors lose money.
They cut back on research and development.
Their suppliers and transporters suffer.
The government receives less in taxes and pay more in social services.

16. Capitalism SECTION 3.1 Economic Benefits of Successful Firms
Profitable businesses hire more people.
Their investors earn from investing in the company.
Their vendors make more money.
Companies and employees give more to charities.
The government receives more taxes.
Competition benefits the consumer.

17. Reviewing Key Terms and Concepts
3.1
ASSESSMENT
Reviewing Key Terms and Concepts
1. Provide an example of how freedom of ownership may be limited by government.
2. Provide an example of a business that uses price competition and one that uses nonprice competition.
3. What principle of free enterprise provides the incentive for people to risk their money on business ventures?
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18. Reviewing Key Terms and Concepts
3.1
ASSESSMENT
Reviewing Key Terms and Concepts
4. What is risk, and why is it relevant to a free enterprise system?
5. How do profitable businesses benefit the economy?
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19. ASSESSMENT Thinking Critically 3.1
With computer technology becoming an integral part of business operations and the growth of Internet related industries, applications for patents for new business processes are increasing. Patents for a one-click system for online orders are pending. What are some consequences of such patents being granted?

20. Marketing Essentials
End of Section 3.1