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Free Enterprise Study Guide
Free Enterprise Study Guide
- They both were communist but are starting to stray away. China is doing better
with their stock market being private and them having the second highest GDP
rate. Russia has a civil chamber but their complaints don’t get fixed, Putin is a
tyrant, and they have the 12th highest GDP.
Basic Principles of the free enterprise system
1. Profit motive- encourages people to make money
2. Open opportunity- everyone can compete in the market
3. Legal equity- everyone has the same legal rights
4. Private property rights- people have the right to control their possessions as they
see fit
5. Free contract- people may decide what agreements they want to enter into
6. Voluntary exchange- people may decide what and when they want to buy and
sell
7. Competition- rivalry among sellers to attract customers while lowering costs
Reasons why the economy of the USSR collapsed
- The best resources were given to the military and also went to the space race
- There was no incentives for the citizens, they didn’t have to work hard because their
salary and jobs were guaranteed
- The goods were scare and poor quality
Microeconomics- study of economic behavior and decisions of small units, such as individuals,
families, and businesses EX: individual work ethic, use of tech
GDP- total value of all final goods and services in a particular economy
Public good- shared good/service that doesn’t make sense to exclude people who don’t pay for
it, or to make consumers pay individually for it EX: roads
Public Sector- part of the economy that involves transactions of the government
Private sector- part of the economy that involves transactions of individuals and businesses
Free rider- someone who would not choose to pay for a good/service but gets the benefit of it
anyway through a public good EX: illegal immigrants on highways
Capitalism- economic system in which a country's economy is controlled by private owners
rather than the state EX: United States
Communism- political system based around a centrally planned economy in which all economic
and political power is in the hands of government EX: Soviet Union
Socialism- social and political philosophy that is based on the idea of distributing wealth equally
among people through a democratic means EX: North Korea
Competition- struggle among producers for the money of consumers, regulating force in the free
market
self- interest - one’s own personal, motivating force behind the free market
Transition- Russia and China were a communist economy but they were moving towards a
mixed
The first amendment and social media companies- They are public so they can sensor accounts
EX: Trumps twitter
Adam Smith- He wrote the wealth of nations in 1776. He became so famous because the format
he wrote it in was able to be read by everyone and it was composed of many different ideas.
The two main ideas related to capitalism are Laissez-faire and the invisible hand. Laissez-faire
is limiting government intervention in the economy. The invisible hand is the way in which the
market regulates itself through self-interest and competition working together.
Privatization- the transfer of a business, industry, or service from public to private ownership and
control
Continuum of mixed economies- the degree of government intervention in the marketplace varies
among nations
1. Market- economic decisions are left up to individuals producers and consumers
2. Command (centrally planned)- economic decision are left up to a powerful ruler in
government
3. Mixed- both the government and individuals play important roles in production and
consumption
4. Traditional- traditions, customs, and beliefs shape the goods and the services that
are produced