Free Enterprise Chapter 3 Summary
Chris Hughes
Nic Hart
Mr. Treadwater | Period 3
Overview
In chapter 3, "Free Enterprise," we learned how a free enterprise economy answers the three economic questions. We also learned about the circular flow of economic activity chart. We learned what externalities are and the risks of entrepreneurship. The chapter also covered ethics, such as what is morally right or wrong in economics.
Key Terms - Private Property- Any good that is owned by and individual or a business
- Public Property- Any good owned by the government
- Household- An economic unit of one person or more that sells resources and buys goods and services.
- Circular Flow of Economic Activity- the economic relationships that exist between different economic groups in an economy
- Profit- the amount of money left over after all the costs of production have been paid. Profit exists whenever total revenue is greater than total cost
- Loss- the amount of money by which total cost exceeds total revenue
- Ethics- the principles of conduct, such as right and wrong, morality and immorality, good and bad
- Entrepreneur- a person who has a special talent for searching out and taking advantage of new business opportunities
- Contract- an agreement between two or more people to do something
- Private Good- a good of which one person's consumption takes away from another person's consumption
- Public Good- a good of which one person's consumption does not take away from another person's consumption
- Excludable Public Good- a public good that individuals can be excluded (physically prohibited) from consuming
- Nonexcludable Public Good- a public good that individuals cannot be excluded (physically prohibited) from consuming
- Free Rider- a person who receives the benefits of a good without paying for it
- Negative Externality- an adverse side effect of an act that is felt by others
- Positive Externality- a beneficial side effect of an action is felt by others
Critical Thinking
William Bradford claimed that private property, in lieu of common property, saved the Plymouth colony from failure and starvation. On what was this belief based? Do you agree or disagree? Why?
The Pilgrims landed in 1620 and formed the Plymouth colony. William Bradford was the first mayor of the colony. The colony made a joint stock company with merchants from London. The company advised the colony to make the land owned by all of the colonists. Bradford thought that this was not a good idea because he thought that if everyone had their own land they would take better care of it and not spread sicknesses. What he thought would happen did not come true because in the first winter many people got sick and died. The next year Bradford divided the land. People took better care of it because they believed that now they privately owned it it reflected themselves. They produced much more food and starvation was not a major epidemic. I agree with Bradford. The same belief is used today as people take good care of their private property.
Circular Flow of Economic Activity
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