1 1.To examine what it means to have free enterprise system. 2.To compare capitalism to other economic systems. 3.To analyze how competition affects prices for consumers and revenue for producers. 2 Is the business action of two or more companies striving to gain customers Helps consumers due to: more choices lowering of prices incentives offered allows for shopping around 3 Arises between companies offering similar products Thrives in a free enterprise economy Encourages companies to: improve products reduce prices target different markets Does not occur in communist or socialist countries as all production resources are government owned 4 Free Enterprise the freedom of private businesses to operate in a competitive manner for profit, without government controls Include the following: capitalism communism socialism 5 Allows for the private ownership and management of resources Provides a marketing system in which flexible prices are a necessity due to competition arising between producers Recognizes and encourages the different levels of income and wealth which may be acquired seen as incentive to promote creativity and productivity 6 The United States has a capitalistic economy. Are the capital, labor and land assets used in production operations capital includes buildings and equipments labor includes management and production workers land includes renewable and nonrenewable natural resources 7 Private Ownership the ability of individual citizens to own and operate resources at their own discretion. Prohibits the private ownership or management of resources government regulates production resources Utilizes central planning, meaning the government sets prices and levels of output for example, a car company in a communist country may be told they can only produce 5,000 cars a month and must sell each at $12,000 Emphasizes income and wealth equality 8 The Peoples Republic of China is a communist country. Lies between capitalism and communism Resembles communism in that most resources are government owned for example, a car company in a socialist country will produce cars in a building using machinery and parts which the government, not the company, owns Provides many services back to its people, such as health care 9 The Arab Republic of Egypt is a country which practices socialism. 10 Authoritative single party rule Distributes goods according to needs State ownership of property Justifies violence as a means of obtaining power Many rule under democratic principles Distribute goods according to deeds Either practice state ownership or private ownership of resources Believe in peaceful changes, often brought forth through constitutions Production properties are government or collectively owned Account for eight general forms of market competition four for buyers, four for sellers Include the following: pure competition monopolistic competition oligopoly pure monopoly 11 Allow for 16 different relationships between the producer and consumer 12 Pure Competition Monopolistic Competition Oligopoly Monopsony Pure Competition Monopolistic Competition Oligopoly Monopoly Creates markets with large numbers of buyers and sellers exchanging a homogenous product example: Pizza Hut , Dominos , Papa Johns , Little Caesars , Cicis , Mr. Gattis Allows for easy access and freedom of buyers and sellers in getting in or out of the market 13 Homogenous of or exhibiting similar features; two or more objects which are the same Stipulates the individual seller does not determine the price of the product Includes providing perfect information concerning the product all buyers and sellers know the prices of all other buyers and sellers 14 Arises in markets where many companies purchase differentiated products, such as different makes of cars or brand names example: Ford , Lincoln , Mercury , Volvo , Jaguar and Land Rover are all owned by the Ford Motor Company Employs many firms though they have little influence on price change as this may drive consumers to alternate products 15 Firm an organization which employs resources in order to produce a good or service for a profit Contains more difficult barriers to overcome in entering the market, such as startup capital or product differentiation example: if a company wanted to enter the car market, they would need an extremely large amount of money to manufacture and advertise the product as well as come up with a new style of car which has not yet been offered Relies heavily on the advertising industry 16 Literally means few sellers Is most distinguished by the firms interdependence on pricing and marketing Creates established markets which are extremely difficult to enter example: most agricultural equipment brands are owned by three multinational companies John Deere , CNH Global or AGCO 17 Interdependence mutual dependence Accounts for the firms consciousness of their competitions prices and actions Describes the tendency of products in these markets to be similarly priced Is crucial in maintaining an operation in this form of market as a decrease in price of one company could directly result in loss for another example: if John Deere notices an AGCO company has lowered its price of tractors, usually they will drop their prices as well so they do not lose customers to their competitor 18 Is an industry with only one firm producing the product example: Apple has been accused of being a digital media player and online music retailer monopoly as their iPods do not support files not purchased from iTunes , and these music purchases cannot be played on other digital music players Produces a unique product which has no close substitutes Must possess economic, legal or technical barriers to prevent other firms from entering the market 19 Sets their own price may be discriminatory and charge more or less for certain customers example: Microsoft is able to charge more for products such as Microsoft Office because there is no other software suite which offers as many programs which are created to be as compatible sometimes must adhere to government regulations example: in a city with only one utilities provider, they must adhere to governmental ordinances 20 May also collectively be known as competition laws Allow fair access to markets for entrepreneurs Protect the consumer from issues such as price gouging or discrimination 21 Address the following three main concerns: practices or agreements which restrict free trade and/or competition between other companies abusive behavior or anti-competitive tendencies of companies dominating a market; includes price gouging, predatory pricing or the refusal to deal with certain entities mergers or acquisitions between large corporations which may result in a threat to the competitive process 22 Began in 1998 Stated Microsoft was abusing its monopoly over PC operating systems bundled the Microsoft operating system Windows with the Internet Explorer program, limiting or even preventing competition from other Internet browsers 23 Revenue accounts for the entire income before any deductions are made Profit is the monetary gain of a producer after subtracting operating costs such as: wages rent utilities 24 Include the following: pure competition: many buyers and sellers for a homogeneous product monopsonistic competition: modest amount of buyers and many sellers for a differentiated product oligopsony: just a few buyers monopsony: single buyer 25 Encourage competition Cannot exist in countries where the government owns all production enterprises Support the doctrine of laissez-faire to a certain degree Are able to sell products on an international level must adhere to trade regulations set forth by countries Fluctuate depending on the state of the economy 26 Is a French term which literally translates to let do States there should be no government interference in the economy Does not fully exist in the United States as the government imposes in the following ways: institutes minimum wage establishes welfare programs supports anti-trust regulation 27 Are often criticized because of the following: promotes inequality between the classes puts power into the hands of the wealthy essential needs (healthcare, insurance, heating, etc.) are not provided to those who cannot afford them 28 Practices capitalism using a free enterprise market Utilizes many combinations of the market-buyer structures Encourages competition between producers in order to promote the free enterprise economy 29 1.Compare and contrast socialism and communism. 2.Which alternative buyer structure experiences the least amount of buyers? The most? 3.Define free enterprise in your own words. 4.An oligopoly is most distinguished by the firms intradependence on pricing and marketing. a.true b.false 30 5.What is the difference between revenue and profit? 6.List at least two purposes of anti-trust laws. 7.What form of economy does the United States have? 8.List at least three benefits of competition. 31 9. Laissez-faire is a French term that translates to ___ ___. 10. The United Stated practices ___________ using a ____ ________ market. 32 Free Enterprise: The Economics of Cooperation. (2002, October). Retrieved April 2, 2009, from Federal Reserve Bank of Dallas:Seitz, Nelson, and Halcrow (2002) Economics of Resources, Agriculture, and Food Section Edition. New York, NY: McGraw-Hill Higher Education 33 Project Coordinator: Meghan Blanek Production Manager: Dusty Moore Executive Producers: Gordon Davis, Ph.D., Jeff Lansdell Production Coordinator: Brandon OQuinn Graphic Designer: Ann Adams MMIX CEV Multimedia, Ltd. 34