Chapter 3

Question 1

Capitalism

Answer 1

an economic system in which private citizens, own and use the factors of production to produce and generate profits

Question 2

Capitalism is based on what

Answer 2

Based on free markets (without (or with minor) government regulations and interference

Question 3

Free enterprise

Answer 3

an economic system in which privately owned businesses have the freedom to operate with limited government intervention

Question 4

5 important characteristics of a capitalistic free enterprise economy

Answer 4

1. Economic freedom (to buy things you want, to choose your occupation, and your employer
2. Voluntary exchange (the act of buyers and sellers freely exchanging goods)
3. Private property rights (the right to own and control your own possessions)
4. Profit motive (the incentive to improve ones material well being)
5. Competition (the struggle among sellers to attract consumers

Question 5

Benefits of free enterprise

Answer 5

1. Individual freedom = choices
2. A variety of goods = incredible variety of stuff
3. Adapting to change = prices
4. Promoting process
5. Creation of wealth = GDP (gross domestic product)

Question 6

Major disadvantages of a free enterprise

Answer 6

1. Uneven economic growth (recessions and depressions)

2. Growing gaps between rich and poor (gilded age - 1900 - 56% poverty rate, today we have a 12% poverty rate)

Question 7

GDP

Answer 7

gross domestic product - the dollar value of all final goods, services, and structures produced in one year in a country