Economics Chapter 3 Test
For whom will goods be produced in a free enterprise economy?
In a free enterprise economy, goods are produced for those people who are willing and able to buy them.
when a person is consuming a good and another person can not consume it at the same time
Rival public good
a person who receives the benefits of a good without paying for it
free rider
What goods will be produced in a free enterprise economy?
Business firms produce what consumers would buy
What do entrepreneurs do?
Entrepreneurs come up with ideas for businesses and companies and expand on their ideas to create this business with the incentive of earning a high profit. Entrepreneurs take many risks and losses.
What impact would a law that limited profits have on future entrepreneurs?
Entreprenuers have the incentive of gaining a very high profit so a limited profit would not give them an incentive to come up with successful ideas for their company.
What are some of the qualities or characteristics of an ethical economic system?
Ethical economy allows people to choose their occupation and whom they work for.
public good that individuals CAN BE excluded (physically prohibited) from consuming
Excludable public good
Justify the public school system on positive externality grounds.
It provides free education which benefits many since many have a lower income than others do.
What are some of the freedoms in free enterprise?
Own property, work for whom preferred, etc
What are five major features of free enterprise?
Private property, choice (or freedom to choose), voluntary exchange, competition, and economic incentives
Identify and explain the three ways government may deal with a negative externality.
The court system: they may use the court system as a way to deal with it since nobody wants to deal with a fine or a charge. Regulations: It would be considered a law for people to not go through with the negative externality. Taxation: When committing the negative externality, taxation would be the result which people do not want to pay therefore preventing them from doing it.
Who decides what goods will be produced in a free enterprise economy?
The individuals who own and manage the business firms decide how goods will be produced.
Company Z produces men's clothes. For the past 18 months, the company has been taking a loss. What is the loss "saying" to company Z? Stated differently, what message should be coming through loud and clear to company Z?
The loss is stating that Company Z would be more profitable if they expand their production to women's clothing as well.
An economist would say that profit attracts resources. What does this statement mean? You may want to give an example to illustrate your point.
The statement means that if an entrepreneur sees someone else making a profit in a particular industry, then that entrepreneur will want to use his/her resources (land, labor, etc) to enter that industry and make a profit too.
Explain how voluntary exchange can make individuals better off.
These individuals are given the choice to spend their money on whatever they desire and are not forced to buy things. The seller and buyer are both better off after this interaction.
How do you find the total profit?
Total Revenue - Total Cost = Total Profit
an agreement between two or more people to do something
contract
an adverse side effect of an act that is felt by others
negative externality
a beneficial side effect of an action that is felt by others
positive externality
a good of which one person's consumption takes away from another person's consumption
private good
a good of which one person's consumption DOES NOT take away from another person's consumption
public good