Chapter 3- The American Free Enterprise System

Question 1

What is capitalism?

Answer 1

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

Question 2

What is capitalism based on?

Answer 2

Free markets (w/out government regulation and interference)

Question 3

What is free enterprise?

Answer 3

An economic system which privately owned businesses have the freedom to operate w limited gov intervention

Question 4

What are the 5 characteristics if a free enterprise/capitalist economic system?

Answer 4

1. Economic Freedom (have choices)
2. Voluntary exchange (buyers and sellers freely exchange goods)
3. Private property rights (own and control your own possessions)
4. Profit motive (the incentive to improve one’s goods)
5. Competition (the struggle among sellers to attract customers)

Question 5

What are the 5 benefits of Free Enterprise?

Answer 5

1. Individual Freedom x choices
2. A variety of goods- inexhaustible variety of goods
3. Adapting to change-prices
4. Promoting progress- cell phone evolution
5. Creation of wealth- gdp (gross domestic product)

Question 6

2 major disadvantages of a free enterprise?

Answer 6

1. Uneven economic growth (recessions and depressions)

2. Growing gaps between rich and poor (gilded age 56% poor and today 12% poverty)

Question 7

What is the GDP?

Answer 7

The dollar value of all final goods, services, and structures produced in one year in a country.

Question 8

What is an entrepreneur?

Answer 8

A person who organizes and manages the factors of production

Question 9

What is the role of the entrepreneur?

Answer 9

The spark plug and the catalyst of the free enterprise economy

Question 10

Being an entrepreneur is very safe and secure? T/F

Answer 10

False-super risky w a high rate of failure

Question 11

What is the role of the consumer?

Answer 11

Determine what is produced. Role is sovereign (always right)

Question 12

What are the 4 major roles of the government?

Answer 12

Play a limited role

• protect the people
• provide services for the people
• regulate business
• consumer of goods

Question 13

What is minimum wage?

Answer 13

Lowest legal wage that can be paid to most workers

Question 14

What is social security?

Answer 14

Federal program of disability and retirement benefits that covers mist working people.

Question 15

What is medicare?

Answer 15

Federal health insurance program for senior citizens, regardless of income

Question 16

What is medicaid?

Answer 16

Federal health insurance program for lower income families

Question 17

What is inflation?

Answer 17

A rise in the general level of prices.

Question 18

What is fixed income?

Answer 18

Income that does not increase over time.