Chapter 3 ReviewFree Enterprise

Economics

1In a free enterprise economy,

how is the following question answered. What goods will be produced?

Producers produce what consumer want to buy.

2How will goods be produced

in a free enterprise economy?By individuals who own and

manage businesses.

3For whom will goods be

produced in a free enterprise economy?

The consumers who are willing to buy them.

4Under the right of ______ the

government can take ownership of land without the consent of the owner.

Eminent domain

5How does competition

among producers benefit consumers?

Lower pricesBetter variety of productsProduct improvements

6List an economic incentive

the federal government offers to citizens?

Tax breaks for home ownership, student loans

7The amount of money left

over after all the costs of production have been paid.

Profit

8The amount of money by

which total costs exceeds total revenue.

Loss

9Any good that is owned by

an individual or business. Private property

10The principles of conduct,

such as right and wrong, morality, and immorality, good and bad.

Ethics

11List an argument for why free

enterprise is an ethical economic system.

People can chooseVariety of productsRewards depend on performanceFreedoms

12List a reason against the free

enterprise economic system.Income inequalityToo much power to large

corporations

13A person who has a special talent

for searching out and taking advantage of new business opportunities, as well as developing new products and new ways of doing things.

Entrepreneur

14An agreement between two

or more people to do something.

Contract

15A public good that individuals

can be physically prohibited from consuming.

Excludable public good

16Give an example of a

nonexcludable public good.National defense

17A person who receives the

benefits of a good without paying for it.

Free rider

18An adverse side effect of an

act that is felt by others.Negative externality.

19Any good that is owned by

the government.Public property

20Give an example of a

negative externality. Neighbors who fail to maintain

their propertyLoud music Pollution

21A beneficial side effect of an

action that is felt by others. Positive externality.

22The price of a good times the

number of units of the good sold equals________.

Total revenue

23Give an example of an

excludable public good. Lecture at a college – if you

aren’t accepted or don’t pay tuition

24A(n) _______ is something

that encourages or motivates a person toward an action.

Incentive

25A public good that individuals

cannot be physical prohibited from consuming.

nonexcludable public good

Final Question

List 5 important features of free enterprise.

Private propertyChoiceVoluntary exchangeCompetitionEconomic incentives