Chapter 3

Question 0

What is The role of the consumer

Answer 0

voluntary exchange - through voluntary exchange the consumer sends a signal to businesses willing them what to produce and how much to make. they also send a signal when they do not buy a good or service - that the product id undesirable or overpriced. therefore, any artificial constraints such as price ceilings, minimum wage, government subsidies, ect. necessarily obstructs this information.
interest groups - consumers interest groups persuade political leaders to pass laws to protect consumers.

Question 1

5 basic principles of free enterprise and discus the advantages of each

Answer 1

profit motive
the incentive that drives individuals and business owners to improve their material well being
forces businesses to exercise financial discipline
it entourages entrepreneurs to take rational risks
improves productivity by allowing more efficient companies to makes more money and inefficient companies to fail
rewards innovation by letting creative companies grow
open opportunity
allows anyone a chance to be an entrepreneur
allows economic mobility up and down
legal equality
to maximize human capital, legal equality is encourages - civil rights are protected by market driven economic interests
private property
people have the right to control their possessions and use them as they wish
personal ownership provides incentive to use property wisely
freedom to buy and sell
free contract - allows people to decide what agreements they want to enter into
voluntary exchange - allows people to decide what, when, and how they want to buy and sell

Question 2

Economic freedoms regarding property rights, taxation and contracts

Answer 2

property rights
the influence john Locke on the founders: property rights as protection of individual liberty
the fifth amendment asserts that “no person … shall be deprived of life, liberty, or property without due process of law; nor shall private property be taken for public use without just compensations.”
the 14th amendment extend this protection from the national govt to the state govts
eminent domain
taxation
no taxation on exports
article i, section 9 requires that direct taxes be levied to states by population, thus in effect prohibiting direct taxation of individuals; ergo; taxation of income was illegal.
the 16th amendment, ratified in 1913, gave congress the right to tax directly based on income (the income tax)
contracts
the constitution guarantees businesses and people the right to make legally binding agreement, contracts..
article i, section 10 prohibits states from passing any law impairing the obligation of contracts

Question 3

How has the role of government in our economy changed since the founding of our country?

Answer 3

initially the role of government was to protect property rights, and other business activities. BUT over time americans have come to expect government to take other actions to promote the public interest, the concerns of society as a whole.

Question 4

Be able to discus the ways government may promote economic strength

Answer 4

through encouraging higher employment
many economist regard 10-11% unemployment as ideal
by encouraging economic growth and therefore a higher standard of living [increasing GPD is a sign of such growth]
some economist believe that increased spending is the best approach to help
some economist believe tax increase is the answer
encouraging economic stability
large fluctuations tend to weaken confidence in the economy and therefore discourages private investment, which in turn results in lower growth
a major indicator of stability is price
another indicator is security of economic institutions, such as banks or the stock market
to economic stability the federal government
provides protection up to 250k ex: FDIC
investing fraud ex: SEC
regulate flow of money ex: the federal reserve

Question 5

In what ways have our government encouraged technological innovation

Answer 5

grants - morrill acts of 1862 and 90
government research - NASA
by providing patents and copyrights

Question 6

the incentive that drives indivisuals and businesses owners to improve their material well being

Answer 6

profit motive

Question 7

the principle that anyone can compete in the marketplace

Answer 7

open opportunity

Question 8

the principle that everyone has the same legal rights

Answer 8

legal equality

Question 9

the principle that people have the right to control their possessions and use them as they wish

Answer 9

private property rights

Question 10

the principle that people may decide what agreements they want to enter into

Answer 10

free contract

Question 11

voluntary exchange

Answer 11

the principle that people may decide what, when, and how they want to buy and sell

Question 12

a private organization that tries to persuade public officials to act in ways that benefit its members

Answer 12

interest groups

Question 13

love of ones countries

Answer 13

patriotism

Question 14

the right of a government to take private property for public use

Answer 14

eminent domain

Question 15

the concerns of society as a whole

Answer 15

public interest

Question 16

laws requiring companies to provide information about their products or services

Answer 16

public disclosure laws

Question 17

gross domestic product

Answer 17

the total value of all final goods and services produced in a country ina given year

Question 18

a period of macroeconomic expansion followed by one of decline

Answer 18

business cycle

Question 19

a proposed law submitted directly to the public

Answer 19

referendum

Question 20

obsolescence

Answer 20

situation in which older products and processes become out of date

Question 21

a government license that gives the inventor of a new product the executive right to produce and sell it

Answer 21

patent`

Question 22

a government license that grants an author exclusive rights to publish and sell creative works

Answer 22

copyright

Question 23

a commitment to the value of work

Answer 23

work ethic

Question 24

public good

Answer 24

a shared good or service for which it would be inefficient to make consumers pay individually and to exclude those who did not pay

Question 25

public sector

Answer 25

the part of the economy that involves the transactions of the government

Question 26

private sector

Answer 26

the part of the economy that involves the transactions of individuals and businesses

Question 27

infrastructure

Answer 27

the basic facilities that necessary for a society to function and grow

Question 28

someone who would not be willing to pay for a certain good or service but who would get the benefits of it anyway if it were provided as a public goods

Answer 28

free rider

Question 29

market failure

Answer 29

a situation in which the free market, operating on its own, does not distribute resources efficiently

Question 30

externality

Answer 30

an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

Question 31

government aid to the poor

Answer 31

welfare

Question 32

direct payments of money by the government to poor, disabled, or retire people

Answer 32

cash transfers

Question 33

an income level below that which is needed to support families or households

Answer 33

poverty threshold

Question 34

goods and services provided for free or at greatlly reduced prices

Answer 34

in-kind benefits

Question 35

a financial award given by a government agency to private individual or group in order to carry out a specific task

Answer 35

grant

Question 36

expansion

Answer 36

a period of economic growth as measured by a rise in real GDP

Question 37

contraction

Answer 37

a period of economic decline marked by falling real GDP