Chapter 3: The American Free Enterprise System Flashcards
ability to enter, compete in market of one’s choice
open opportunity
everyone has same economic rights under the law
legal equality
right to decide which legal agreements to enter
free contract
incentive to gain from economic activities
profit motive
promoter of free markets
- free to choose
- believed government should only control money supply
- scholar
- 1976: won Nobel Peace Prize for economics
Milton Friedman
capitalist system
- anyone is free to start a business
- choose how to use resources
- managers choose workers
- government protects/encourages competition, enforces contracts
- consumers choose which goods and services to buy
free enterprise system
money left after production costs subtracted from sale price
profit
government protections, protections, provisions, regulations against communism
modifies free enterprise economy
branches of government that make production decisions
public sector
outsiders benefit from or pay for marketplace interaction
market failure
products provided by government, consumed by public
- funded with taxes
public goods
person who benefits but does not pay for public good or service
- no incentive for business to produce public goods (people would not pay)
- only way to have public goods is for government to fund with taxes
free rider
goods and services needed for society to function
Ex. highways, mass transit, water, sewer, health care, fire department
infrastructure
occurs when economic transaction cause externalities
market failure
side effect on someone other than producer/buyer
externality
people uninvolved in the transaction pay costs
negative externality
benefits people uninvolved in transaction
positive externality
consumed by public but no people can be excluded
toll goods
government payment to help cover cost of government activity
subsidy
government programs designed to protect people from economic hardship
safety net
move income from person or group to another
- recipient does not provide product in return
transfer payments
made by government with tax money
- most are in an area of social spending
- usually go to poor, aged, disabled, or people who lose their jobs
public transfer payment
