Chapter 3 Economics Quiz 10/9

What force acts as a balance to the profit motive in the American free enterprise system?

Competition offsets the drive to earn profits, since it forces prices down. This helps producers find a price that is not so high that it deters buyers and not so low that it inhibits profits.

Explain how a free enterprise system works.

Free enterprise system is the heart of a capitalist economy. Open opportunity is a key freedom in the free enterprise system, it is the ability of everyone to make a free choline in the marketplace because of this it ensures that the market will reflect a wide range of interests and talents and will provide incentives to everyone to be efficient and productive.

Give examples of three different economic freedoms in a free enterprise system.

If you walk through a suburban shopping mall you'll see national and regional chain stores next to small boutiques and startup shops. - Freedom to buy, to sell, and to own what you choose.

How does the profit motive work to allocate resources?

In the marketplace, consumers buy products for their personal use from producers who mare or provide goods and services. In these exchanges, consumers look to get the best deal for the money they spend. Producers, on the other hand, are looking to earn the most profit from these transactions. Profit is the money left over after the costs of producing a product are subtracted from the revenue gained by selling that product. Seeking opportunities to earn profits is one way producers help allocate scarce resources in the economy. - Producers are motivated to buy thing they need to make a profit.

Explain the differences: Legal Equality

Is a situation in which everyone has the same economic rights under the law

Explain the differences: Free Contract

Is a situation in which people decide which legal agreement to enter into

Free enterprise system

Is another name for capitalism. (An economic system based on private ownership of productive resources)

Profit motive

Is driving force in a free enterprise system, urging entrepreneurs to enter the market. The market allocates resources through the activities of both producers & consumers

Explain the differences: Open opportunity

Is the ability of everyone to take part in the market by free choice

How is infrastructure linked to the economy?

It consists of all the goods and services that are necessary for the functioning of society. For example the U.S. would be like without its interstate highways, safe airport and seaports, and passenger and freight train system. To begin with, the nation's economy would grind to a halt. Further, the nation would lose its ability to move troops in case of attack or to evacuate people in an emergency. - It is a key to the follow of the government, if the roads are good then the government is good

Positive externality , subsidy

It furthers a ____________, such as better health through vaccinations, by offering a ____________ for inoculations.

Public goods

One role for the government is to provide ___________, such as national defense.

Profit

Producers, seeking ____________ move their resources into the most productive areas. Consumers, through their dollar votes, help determine which products succeed & which fail.

How is a free enterprise system linked to economic freedom?

Property exchange and involuntary

Why is the U.S. economy sometimes referred to as a modified free enterprise system?

The U.S. economy is sometimes referred to as a modified free enterprise economy because it is based on the market system, which is mixed. Government is an important element in the American economic system, but its role is relatively limited. This type of mixed economy, which includes some government protection, provisions,and regulations to adjust the free enterprise system is the modified free enterprise economy.

How can government limit a negative externality? How can it spread a positive one?

The government can limit a negative externality by punishing those who cause negative externality. We can spread positive externality is subsidized good things like meals on wheels.

Describe how the government interacts with the product and resource markets.

The government is both a consumer and producer. The government is a consumer in the resource market, spending money to buy the factors of productions. It is also a consumer in the product market, spending money in exchange for products.

What is the role of the profit motive in the American free enterprise system?

The profit motive assures that people are able to engage in free enterprise and it also makes producers motivated by profit, seeking the highest possible price for their product. This helps producers find a price that is not so high that it deters buyers and not so low that it inhibits profits.

Free contact

Three features of this type of economy are open opportunity, legal equality & ___________or the right to enter into agreements of one's choice.

Infrastructure

Without a strong _____________ in place, modern economies cannot function.

Modified free enterprise economy

Left on its own, however, a free market cannot address many social issues. The United States has a ___________, mixing government involvement & market forces.

Explain the differences: Free Contract

The difference in the term is that everyone decides what legal agreement they want to be a part of. It is also different because it has to do with legal agreements.

Explain the differences: Legal Equality

The difference in this term is that everyone can't pick their economic rights, they all have to have the same rights. It is also different because it has to do with economic rights.

Explain the differences: Open Opportunity

The difference in this term is that everyone has the choice if they want to take part in the market or not. It is also different because it has to do with the market.

How do households and business firms interact in the product and resource markets?

The economy could be viewed as a stream of resources and products moving in a circular flow between households and businesses. Money also flows between households and businesses, facilitating this exchange of products and resources. Government is a producer here, providing goods and services to both households and businesses. Government collects money from households and businesses, in the form of taxes, as payment for these goods and services. It covers the costs of what it produces with this money. Government also uses this money to make purchases in the resource and product markets. - Households sell their labor, and are rewarded with a wage, which is spend on products and the producer uses the money they make to make more products.

Profit Motive

The force that encourages people and organizations to improve their material well being from economic activities.

Negative externality

The government also addresses problems created by a _____________, such as pollution from a factory that affects all those living nearby,

Public transfer payments

The government also makes direct ____________ in the form of social security, unemployment compensation & disability coverage.

Explain how producers, consumers, and the government interact to allocate resources in a free enterprise system.

The government is a consumer in the resource market, in which they spend money buying factors of productions, which can be distributed to different businesses. It also is a consumer in the product market, in which they spend the money in exchange for products from different countries, which can help people in society buy things which gives the government money to purchase products and get factors of production.