Chapter 2 american free enterprise

private sector

he part of a country's economic system that is run by individuals and companies, rather than the government.

transfer payment

is a redistribution of income and wealth (payment) made without goods or services being received in return

profit motive

is the motivation of firms that operate so as to maximize their profits. Mainstream microeconomic theory posits that the ultimate goal of a business is to make money.

voluntary exchange

the act of buyers and sellers freely and willingly engaging in market transactions. Moreover, transactions are made in such a way that both the buyer and the seller are better off after the exchange than before it occurred.

infrastructure

the basic physical and organizational structures and facilities

free contract

the concept that people may decide what agreements they want to enter into. A contract may be described as free when it is free from force or fraud.

externality

the cost or benefit that affects a party who did not choose to incur that cost or benefit.

free rider

the free-rider problem occurs when those who benefit from resources, public goods, or services do not pay for them, which results in an underprovision of those goods or services

business cycle

the upward and downward movements of levels of GDP (gross domestic product) and refers to the period of expansions and contractions in the level of economic activities (business fluctuations) around a long-term growth trend.

public interest

the welfare or well-being of the general public

subsidy

typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy.

positive externality

a benefit that is enjoyed by a third-party as a result of an economic transaction

competition

competition is a condition where different economic firms seek to obtain a share of a limited good by varying the elements of the marketing mix: price, product, promotion and place.

open opportunity

Profit motive. the force that encourages people and org. to improve their material well-being.

free enterprise system

a type of economy where products, prices, and services are determined by the market, not the government. It's capitalism, not communism. Things that are free are unconstrained, and a business is an enterprise. So, free enterprise refers to an economy where businesses are free from government control.

public sector

The part of national economy providing basic goods or services that are either not, or cannot be, provided

negative externality

a cost that is suffered by a third party as a result of an economic transaction.

public transfer payment

a transfer payment in which the government transfers income from taxpayers to recipients who do not provide anything in return

milton friedman

an American economist and statistician best known for his strong belief in free-market capitalism. During his time as a professor at the University of Chicago, Friedman developed numerous free-market theories that opposed the views of traditional Keynesian economists.

interest group

any association of individuals or organizations, usually formally organized, that, on the basis of one or more shared concerns, attempts to influence public policy in its favour.

private property rights

are theoretical socially-enforced constructs in economics for determining how a resource or economic good is used and owned. Resources can be owned by individuals, associations or governments.

public disclosure laws

laws requiring companies to provide full information about their products.

market failure

market failure is a situation in which the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss.

modified free enterprise economy

recognizes the role of the consumer as sovereign, or ruler of the market.