Homework #3 Name: _____________________________

Date: _____________________________

This Week’s Glossary:

1- Free Enterprise
 An economic system characterized by private or corporate ownership of capital
goods; investments are determined by private decision rather than by state control
 In Free Enterprise, individuals are generally free to buy and sell a variety of
products in the market
 However, there is limited government intervention when necessary.
2- Traditional Economy
 A good or service for which it would be impractical to make consumers pay
individually and to exclude nonpayers
 Public schools, roads, and public libraries are examples of public goods.
 Public goods are paid for with tax
3- Free Market Economy
 Protect a person or household in times of severe financial hardship
- Such as when there is chronic incapacity to work and earn (e.g., the severely
disabled, elderly, young orphans etc.)
- When there is an unpredictable shock (e.g., sudden death or serious illness of
bread-winner)
- When there is an unpredictable community shock (e.g., economic recession, bad
harvest, flood)
-
Centrally Planned Economy

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Multiple-Choice Questions:
1. Giving consumers the freedom to make
their own economic choices is the
fundamental purpose of
(1) A centrally planned economy.
(2) The free enterprise system.
(3) Consumerism.
(4) Socialism.
2. Complete the sentence to make a true
statement. Competition
(1) Creates artificially high prices for
6. Which of the following is a negative effect
of government regulation?
(1) Government regulations can be costly
for businesses to implement and may cut
into profits.
(2) Government regulations can protect
consumers’ health.
(3) Government regulations define air
traffic control and piloting standards.
Government regulations recognize the
rights of disabled individuals.
products and services.
(2) Allows most businesses to make a profit.
(3) Slows down innovation in the
marketplace.
(4) Means consumers have more economic
choices.
3. American free enterprise is driven by the
(1) Desire for economic equality.
(2) Need to make a living.
(3) Desire for profit.
4. The business cycle is
(1) The study of the economic behavior and
decision making of small units, such as
individuals, families, and businesses.
(2) The study of the behavior and decision
making of entire economies.
(3) A commitment to the value of work and
purposeful activity.
(4) A period of macroeconomic expansion
followed by a period of contraction.
5. Which of the following would be
considered a public good?
(1) A cartoon-themed amusement park
(2) Yellowstone National Park
(3) A membership-only country club
(4) A shopping mall
according to group members’ interests
Questions:
1- Why is education important to the success of a free enterprise system?
7. Which of the following is a public good?
(1) An Internet provider
(2) A construction company
(3) A private garden
(4) The military
8. Which of the following statements about
externalities is FALSE?
(1) Only the private sector can create both
positive and negative externalities.
(2) Negative externalities are unintended
costs generated by the production of some
goods and services.
(3) A positive externality of education is the
benefit to all of society from an educated
population.
(4) Many public goods and services generate
positive externalities.
9. Welfare is
(1) A faith-based initiative.
(2) Government aid to the poor.
(3) Goods and services provided to people
over the age of 65.
(4) The process used to produce a good or
service.
10. An income level below that which is
needed to support families or households is
(1) Microeconomics.
(2) The gross domestic product.
(3) The poverty threshold.
 2- According to the text, https://pressbooks-dev.oer.hawaii.edu/principlesofeconomics/chapter/
https://opentextbc.ca/principlesofeconomics/chapter/14-3-the-
safety-net/ , how the government addresses the issue of the economy when it comes to social
14-3-the-safety-net
programs like welfare and Medicaid?

3- What are the three key economic questions that we discussed?

4- What are the advantages and disadvantages of the free market system?

5- How does a centrally planned economy differ from a free market economy?