Chapter 3

What are the aspects of a free enterprise system?

Private property, limited government, profit and loss, free market

Private property means

you are in control of the money you earn

Can one force another, in a free enterprise system, to buy, sell, or purchase a good

no

In a free market there are flexible wages  and prices (what people get paid and what things cost is always changing) and competition. Is competition between businesses good for you the consumer? 

yes, because competition between businesses means the consumer has choices

What do businesses compete for?

customers

When creating a product to sell, the seller must 

ensure the product can sell for more than it cost to make

Limited government refers to 

the government interfering with businesses as little as possible in a free enterprise system

Limited government promotes competition between business but also 

prevents the creation of monopolies----when one business or person controls all aspects of a product or service

How many elements are there in a Free-Enterprise system?

3

A Free-Market economy consist of how many important Components? 

2

In an Unregulated Price system, an economic system allows supply and demand to regulate prices

true (Unregulated Price system)

The 2nd principle of a Free enterprise system is Individual rights?

true (2nd)

The 3rd principle of the Free Enterprise system:

Apply to all people 

The basic roles of the government is to: 

Uphold the freedom, protect the citizens and a government to protect the citizens

There are 4 conditions needed for a properly functioning democratic system

false, not 4

What does it mean to say that a resource is non-excludable?

Anyone can use it without directly paying for it

Why are resources like national defense and fisheries considered non-excludable?

It is too expensive to enforce excludability

What is non-rivalrous consumption?

When one person's use of a resource doesn't prevent another person from using the resource

When can a non-rivalrous resource become rivalrous?

When the use of the resource by multiple people creates an additional cost to use it

If private companies cannot make money on public goods, how does the government pay for supplying them?

The government makes everyone pay in the form of compulsory taxes.

Ultimately, how does society create the distinction between public and private goods?

Through laws that enforce excludability, or not

When individuals decide to put their house up for sale, they are exercising their _____ laws.

private property

Farmers who feel they need a private organization to influence public policy in their behalf might form a/an _____.

interest group

Nutritional values printed on candy wrappers or milk cartons are required under ______ laws

public disclosure

The concerns of the public as a whole make up the _____.

public interest

TRUE/FALSE: Macroeconomics deals with the smaller units of the economy, like individual people. 

FALSE! Macroeconomics

Which term means activities that people pay others to do for them?

services

Which term means tangible products that people use?

goods

______ is the market value of ALL final goods and services produced in a country during a period of time. 

gross domestic product (GPD)

TRUE/FALSE: Countries with strong economics will have a Net Export (meaning they sell more to other countries than they buy). 

True! Countries strong econ net export

An example of _____ is when a business uses current income to buy new equipment or develop new products. 

investment

Choose all that apply. Which of the following is counted in U.S. GDP? (Assume all products are made in the U.S.)

• A new gaming computer purchased by a U.S. college student.

• A new desk purchased by a U.S. business for a new employee.

• Child care provided by a daycare center.

Choose all that apply. Which of the following is counted in U.S. GDP? (Assume all products are made in the U.S.)

Drill purchased by a construction company.

Choose all that apply. Which of the following is counted in U.S. GDP?

A new video game made in the U.S. and purchased in China.

A license to use software created this year in Germany and Italy, purchased in the U.S. 

No, since the software was not produced in the U.S.

Internal hard-drives bought by Dell for their PC’s.

No, the hard-drives are intermediate goods. Their value will be included in the final value of the PC’s sold by Dell.

A new crane purchased by a construction company.

• Yes, the crane is a capital good and is included in GDP.

The fighter jet purchased by the U.S. Navy this year.

• Yes, the fighter jet is a government purchase and is included in GDP.

The manicure you got last week.

• Yes, payment for consumer services is included in GDP.

The social security checks your grandfather received this year.

• No, social security checks are transfer payments and are not included in GDP.

Eggs bought by you to make an omelet at your house.

• Yes, since the eggs will not be sold again as a part of another good.

A Dell PC purchased for a legal firm’s office.

• Yes, because the PC is a capital good.

A house built in 1999 and sold this year.

• No, the house was included in the 1999 GDP. Only goods produced in the current year are included in GDP.

The value of the cleanliness of U.S. rivers and bays.

• No, while it’s certainly valuable to society, there is no way to calculate the value of the cleanliness of rivers and bays, and so this is not included in GDP.

Eggs bought by the bakery to make cakes.

• No, the eggs are an intermediate good. The value of the eggs will be included in the final value of the cakes sold by the bakery.

A blouse made half in Brazil, half in the U.S.

• Yes, 50% of the cost of the blouse will be incorporated into U.S. GDP.

A used lawnmower purchased by a landscaping company.

• No, used goods and services purchased are not included in the GDP, as their value was already counted when originally sold.

French wine imported by a U.S. consumer.

• No, GDP only includes goods and services produced within a country’s borders.

U.S. wine exported to a French consumer.

• Yes, GDP includes goods and services produced within a country’s borders.

A replacement internal hard-drive bought by a legal firm for a Dell PC in its office.

• Yes, since the hard-drive will not be sold again as a part of another good.

A sweater made by your grandmother and given to you for your birthday.

• No, because the good was not sold in a market.

A new house built and sold this year.

• Yes, since the house was built this year, it is included in GDP.

A zipper produced in Japan and sold to an American clothing company.

• No, the zipper was produced in Japan. Additionally, it is an intermediate good. The value of the zipper will be included in the final value of the jeans sold by the clothing company.

A zipper produced in the U.S. and bought by an American clothing company for a pair of jeans.

• No, the zipper is an intermediate good. The value of the zipper will be included in the final value of the jeans sold by the clothing company.

A new video game produced in the U.S. and bought by a consumer in Taiwan.

• Yes, because the video game was produced in the U.S.

The value of all bald eagles in the U.S.

• No, while valuable, there is no way to calculate the value of the bald eagles.

Logo design performed by a contractor.

• Yes, a logo is a good sold in a market and so is included in GDP.

Table services at a local restaurant.

• Yes, restaurant service is a service sold in a market and so is included in GDP.

Mary earns $7.50/hour working at the local grocery store.

counted, wages

Chris purchases a brand-new Ford F-150 made in San Antonio.

counted, consumption

The United States Marine Corps invades Los Angeles, California and in the process spends $5 billion. Los Angeles surrenders.

counted, government spendings

On vacation, Matt purchases a Goofy hat at Walt Disney World’s Magic Kingdom. He then declares himself supreme leader of Tomorrowland.

counted, consumption (Matt)

Lanny receives a monthly check for the oil pumped off of his property.

counted, rent

Apple spends $300 million building a semiconductor factory in San Jose, Costa Rica

not counted, foreign spending

Apple spends $300 million building a semiconductor factory in San Jose, California.

counted, investment

An indie band member purchases a used Volkswagen Euro Van in which to tour South Texas.

not counted, used

 Lindsay buys a new John Deere Tractor for her organic farm in New Hampshire.

counted, investment (Lindsay)

John Deere Tractor receives payment from Lindsey for a new tractor.

not counted, cannot double count

Mr. Smith receives a $500,000 stock dividend.

counted, Investment; the dividends are a form of income.

Mr. Baker buys himself a $500,000 house that was built 50 years ago. It burns to the ground the next day. Sadly, it was uninsured.

not counted, used good

North East ISD builds a new high school…in Canada. Parents are angry because of the lengthy commute.

not counted, It is built outside the United States.

Russian President Vladimir Putin orders a dozen Krispy Kreme glazed donuts and has them shipped to the Kremlin. He later hides in his office and eats the entire dozen without sharing.

counted, net exports

After leaving office, George W. Bush clears 50 acres of cedar on his ranch in Crawford, Texas and plants native live oaks. He then sells pollution permits to Al Gore so that Al can sequester the carbon emissions from his SUV.

not counted, private transaction

How do local governments deal with "free riders" to pay for things like fire companies, etc?

taxes

What is non exclusion?

Its difficult to exclude non payers from benefiting

How does society attempt to work to solve the tragedy of the commons issue?

Government regulation & private owenership

A good example of a negative externality is

pollution from a factory

A good example of a positive externality is

education

How will a tax impact the market?

decrease production and limited pollution

How does the US government regulate the smoking industry?

tax cigarettes

Laptop

Who pays?

Who benefits?

Who provides?

individual

individual

private business

(L)

Police Protection

Who pays?

Who benefits?

Who provides?

Taxpayers

All

Government

(PP)

Potato chips

Who pays?

Who benefits?

Who provides?

individual

Individual

Private business

(PC)

National Weather Service

Who pays?

Who benefits?

Who provides?

Taxpayers

All

Government

(NWS)

Socks

Who pays?

Who benefits?

Who provides?

Individual

Individual

Private business

(S)

Banana

Who pays?

Who benefits?

Who provides?

Individual

individual

private business

(B)

Mosquito Control

Who pays?

Who benefits?

Who provides?

Taxpayers

All

Government

(MC)

National Park

Who pays?

Who benefits?

Who provides?

Taxpayer

All

Government

(NP)

Fireworks Display

Who pays?

Who benefits?

Who provides?

Taxpayers

ALl

Government

(FD)

For each of the following items, decide first if the good is rival or non-rival and then whether it is excludable or non-excludable.

Apples

 Rival, excludable (apple)

The Chinese language

Non-rival, non-excludable (chinese)

Cable television

Non-rival, excludable (cable)

Farm-raised salmon

Rival, excludable (salmon)

Yosemite National Park

Non-rival, excludable (park)

The idea of calculus

Non-rival, non-excludable (calculus)

Which of the following are free riders, which are forced riders, and which are just people paying for public goods? - In Britain, Alistair pays a tax to support the British Broadcasting Company. He doesn’t own a radio or TV. 

Forced rider

Monica pays her local property taxes and state incomes taxes. Police patrol her neighborhood regularly. 

Paying taxes for public goods

In the United States, Sara pays taxes to fund children’s immunizations. She lives out in the forest, has no family, and rarely sees other people. 

Forced rider (sara)

In Japan, Dave, a tourist from the United States, enjoys the public parks.

Free rider

True or false: a public good is defined as one produced by the public sector. 

False; a public good is defined as one produced by the public sector.