Free Enterprise
Chapter 2
Definition of Free Enterprise
 People in their economic roles are
free to make ____________
Pillars of Free Enterprise
 Private Property and Public Property
 _________________
 Voluntary Exchange
 _________________
 Market Competition
 __________________
Private Property
 The ____________ and _________
owned by individuals or businesses
 Public property – resources and
products owned by ____________
Specialization
 Process by which businesses and
people focus on producing one or a few
parts of an entire ___________
 _____________ in business also
specialize (administrators, sales people,
etc.)
 Specialization contributes to higher
________ and __________
Voluntary Exchange
 Specialization leads to voluntary
exchange
 Everyone is ____________ on many
other people to voluntarily produce
and exchange products
The Price System
 Uses monetary prices as a __________
system to facilitate exchanges between
buyers and sellers
 Prices act as messengers
 Prices provide strong ____________ to
businesses and consumers
Market Competition
 Competition among businesses
 Competition in ____________ markets
(land, labor, and capital)
 Competition in Markets for products (all
goods and services consumers buy)
Entrepreneurship
 The _____________ that drives
business leaders to compete and
react to changing conditions in the
market
Other Economic Systems
 ______________ System – Government holds most
property rights and government issues commands to
make the what, how, and for whom choices.
 _______________ System – people rely on tradition
and customs to make the what, how, and for whom
choices.
 ______________ Systems – Blend of voluntary
exchange, government command, and even traditional
elements.
Three kinds of models
common in economics
 Descriptive
 Predictive
 Ideal
Circular Flow of Money,
Resources, and Products
 Outside part, arrows pointing
counterclockwise = flow of
___________ and goods and
services
 Inside part, arrows pointing
clockwise = flow of __________ in
the economy
Households
 People living in the U.S.
 Members of households are consumers because they buy and use the goods
and services that businesses produce.
 Households are also resources owners. They own the resource of their own
labor and land and capital.
 Households provide labor to businesses and buy goods and services
businesses produce. Businesses produce goods and services for households
and pay the wages and salaries households use to buy goods and services.
 Production and exchange are tightly linked in a free enterprise economy
 The Circular Flow Model is an illustration of how people in the economy
depend on one another
Money
 Anything accepted as __________
for goods and services
 __________ – exchange of goods
and services without using money
Money is
 _________________________
 _________________________
 _________________________
Goals of US Economic
System
 Full employment – almost all people in labor force are able to find work
 __________________ – increase in output of goods and services
 Price stability – prices of goods and services and resources do not fluctuate
 __________________ – freedom to choose how to earn and living and spend
their income
 Economic security – basic needs of every person should be met
 _________________ – fairness and impartiality, economic opportunities
 Efficiency – getting maximum output from the resources used to produce
goods and services