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Free Enterprise System (Government and free enterprise :synagogue:…
Free Enterprise System
Advantages :star:
How does it work :question:
Legal equality
is required, everyone has the same economic rights under the law
Free contract
is also required, people decide which legal agreements to enter into
Profit motive
is the motivation for people to start a business
Open opportunity ensures a wide range of interests and talents
Free enterprise economy is
open opportunity
(everyone can take part in the market by free choice)
What is it :question:
consumers are influenced by the desire to buy goods&services that satisfy their economic wants
producers are influences by the desire to earn profits :money_with_wings:
producers are free to produce the goods&services that consumers want
anyone is free to start a business or enterprise
Free enterprise system
is the capitalist system
Allocating resources :evergreen_tree:
Roles of producers and consumers :silhouettes:
Consumers :family:
look to get best deal for the money they spent :moneybag:
what they buy will determine what will be produced in the future
buy products from producers
Producers :male-office-worker:
look to earn the most profit
Profit
is the money left over after revenue :heavy_minus_sign: cost of producing a product
make or provide goods&services
Roles of government
Free enterprise system includes some government protections, provisions, and regulations
Gov in the circular flow model
Modified free enterprise economy
is a free enterprise economic system with some government involvement
Government and free enterprise :synagogue:
Managing externalities
Positive externality
benefits ppl who are not involved in the original economic activity
Negative externality
negatively effects people who are not involved in the economic activity
Externality
is a side effect of a transaction that affects someone other than the producer or buyer
Government pays
subsidy
to help cover the cost of an economic activity that is beneficial :couple:
Public transfer payments :bank:
transfer payment :heavy_dollar_sign:
transfer income from one person/group to another even though the receiver does not provide anything in return
address the issue of poverty
public transfer payment :dollar:
government transfers income from tax payers to recipients who don't provide anything in return
is a characteristic of a command economy :classical_building:
safety net
:red_flag:
for people that are temporarily struggling
a government program designed to protect people from economic hardship
Providing public goods :light_rail:
Free rider
is a person who chooses not to pay for a good or service but who benefits from it when it is provided
Public goods
:traffic_light:
ppl can't be excluded from the benefits of the product
one person's use of the product doesn't reduce its usefulness to others
Goods&services that are provided by the gov. and consumed by the public as a group
funded with taxes collected by the gov.
examples : street lights, roads
Public and private sectors :house_buildings:
examples : toll ways, parks :national_park:
private and public sectors share the responsibilities for the
infrastructure
some goods can be produced by both public and private sector
examples : power, water, education, health care :hospital:
Gov. sometimes provide goods&services when there is a
market failure