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Flashcards in Chapter 3 Deck (22):
1

free enterprise system

capitalist system are also known as free enterprise system, anyone is free to start a business or enterprise, private ownership of factors of production

2

open opportunity

ability to enter and compete in market of one's choice

3

legal equality

everyone has same economic rights under the law

4

free contract

right to decide which legal agreements to enter into

5

profit motive

incentive to gain from economic activities

6

Milton Friedman

professor, thinks market should be free to operate in all fields, thinks government's key role is to control money supply, thus inflation

7

profit

money left after production cost subtracted from sale price

8

modified free enterprise economy

government protection, provisions, regulations adjust capitalism (U.S. economy sometimes referred as this)

9

public sector

branches of government that make production decisions

10

market failure

outsiders benefit from or pay for marketplace interaction

11

public goods

products provided by government and consumed by public; funded with taxes

12

free rider

person who benefits but does no pay for good or service

13

two characteristics of public goods

1. people who do not pay cannot be excluded 2. one person's use does not make product less useful to others

14

toll goods

consumed by public but people can be excluded

15

infrastructure

goods and services needed for society to function (i.e. highways, mass transit, water etc.)

16

when does market failure occur?

when economic transactions cause externalities

17

externality

side effect on someone other than producer or buyer

18

negative externality

people uninvolved in the transaction pay cost

19

positive externality

benefits people uninvolved in transaction

20

limitation of free enterprise

people unable to contribute cannot access all economic opportunities

21

safety net

government programs designed to protect people from economic hardship

22

subsidy

government payment to help cover cost of economic activity