Chapter 3: The Free Enterprise System
sherman anti trust act
1890, prevents monopolies
clayton anti trust act
1914, prohibits price discrimination
federal trade commission act
1914, prohibits price discrimination
fair packing and labeling act
1966, regulates what can be printed on products
occupational safety and health act
1978, OSHA, created the agency to protect the welfare of workers and consumers
nonprice competition
businesses choose to compete on the basis of factors that are not related to price. Factors include quality, service, financing, business location, and reputation
free enterprise system
encourages individuals to start and operate their own businesses without government involvement
monopoly
exclusive control over a product or the means of producing
price competition
focuses on the sale price of a product, assumption is that all other things being equal, consumers will buy the product that is lowest in price
four basic principles of free enterprise system
freedom of ownership, competition, profit, risk
shortages
occur when demand exceeds supply
surpluses
occur when supply exceeds demand
demand
refers to consumer willingness and ability to buy products
supply
the amount of goods producers are willing to make and sell
profit
the money earned from conducting business after all costs and expenses, motivation for taking the risk of starting a business
risk
the potential for loss or failure in relation to the potential for improved earnings
competition
the struggle between companies for customers, essential part of free enterprise system, and encourages businesses to produce better quality goods and services at reasonable prices
equilibrium
when the amount of the product being produced is equal to the amount being demanded
