1. The Economy
Chapter 3 and 4

2. Free Enterprise System/Private Enterprise(Capitalism)
Freedom of ownership – can own business with limited government.
Freedom to compete: Competition is the struggle between two companies for customers.

3. Types of Competition
Price Competition – Based on who has the best price
Non-price Competition – based on who has the best quality, service, location, reputation

4. Monopolies Complete control over a product or means of producing it.
Only allowed for electric, gas, and water companies (utilities)

5. Risk – Potential for loss or gain
Examples: Lose money in the stock market
Lose money opening a business (one out of three businesses fail in U.S.A. in 1st year of operation)
New products fail – 85% of new products fail the first year

6. Economic costs of Unprofitable business
Lay off employees
Lose money
Investors lose money
Stock value falls (loss of money to expand)
Government loses money in taxes
Increase in cost of social services such as Unemployment benefits

7. Profitable firm benefits
Hire more people and pay them well
Better employee benefits
Investors earn more money
Government makes more money in taxes
More money is spent into the economy

8. Services our Government Provides
Military
Police
Fire protection
Free public education
Roads and bridges
Public libraries
Medicare
Medicaid

9. Supporter of business
Provides disaster assistance to businesses after a natural disaster
Example: Hurricane Katrina
Government runs the Small Business Administration – provides counseling and education for new business owners

10. Supporter of business (cont.)
The government establishes trade alliances with other countries to encourage trade
Example: U.S. has a trade alliance with Japan
We will buy their products (imports) if they will buy our products (exports)

11. Regulator of business (consumer and workplace protection)
Occupational Safety and Health Administration (OSHA) - protects against unsafe practices in the workplace
Food and Drug Administration – protects against bad food and drugs
Equal Opportunity Commission - protects against discrimination in hiring based on age, gender, ethnicity, etc.

12. Consumer and protection (cont.)
Consumer product safety commission - protects against unsafe products on the market
Environmental protection agency – Protects against damage to the environment
Example: Littering is not permitted in our lake/roads
Oil spill

13. Consumer and worker protection
Securities Exchange Commission – regulates the sale of stocks and bonds

14. Other business protection laws
Patent- protects against someone stealing someone’s new invention idea
Copyright – protects against someone stealing someone’s music or books
Trademark – protects against someone stealing someone’s brand or symbol

15. Government’s role as competitor
Amtrak
Tennessee Valley Authority
Post Office

16. Agency that protects against bad food and drugs
A. Environmental Protection Agency
B. Equal Employment Opportunity Commission
C. Food and Drug Administration
D. Consumer product safety Commission

17. The agency that protects against discrimination based on age, race, gender, etc.
A. Environmental Protection Agency
B. Equal Employment Opportunity Commission
C. Food and Drug Administration
D. Consumer product safety Commission

18. All of the following are services our government provides except:
A. fire protection
B. home insurance
C. roads
D. police Service

19. Having the total control over a product or the means of producing is known as a
A. Risk
B. monopoly
C. disaster assistance
D. competition

20. C. non-price competition D. All of the above
The type of competition where you compete on quality, value, and reputation is known as
A. risk competition
B. price competition
C. non-price competition
D. All of the above

21. All of the following are freedoms that we have in a free enterprise system except:
A. to regulate business
B. to take risks
C. to compete
D. to make a profit

22. All of the following are examples of ways that our government supports business except:
A. Protecting against unsafe workers
B. Providing disaster relief
C. Establishing trade alliances
D. Having the Small Business Administration

23. Protecting against someone stealing someone’s brand or symbol is known as a
A. patent
B. trademark
C. monopoly
D. copyright

24. Protection against stealing someone else’s new product idea:
A. patent
B. copyright
C. trademark
D. Monopoly

25. Supply and demand
Demand for a product is high the price is typically higher. Example: New cell phone
Demand for a product is low the price is typically lower. Out of season clothing

26. Demand/Supply concepts
Demand the supply of a product exceeds demand a surplus occurs. Example: Mrs. Harris ordering too many homecoming shirts
When the demand for a product exceeds supply a shortage occurs. Example: Mrs. Harris not ordering enough homecoming shirts.
When supply equals demand it is called the equilibrium point