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Chapter 3, Section 1
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Learn how the free enterprise
system answers the three basic
economic questions
Identify five key features of free
enterprise systems
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Free enterprise, like all economic
systems, must answer the three basic
questions:
What will be produced?
Things that people want to buy!
How will these goods be produced?
Private firms/entrepreneurs decide
how
For whom will they be produced?
Those willing and able to buy them
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Private property is any good
owned by an individual or
business
Government-owned goods are
public property
Private ownership may conflict
with public needs
Power of eminent domain
Kelo v. City of New London
case—what is a “public use”
Broader than many assumed
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In free enterprise, everyone
has near-total freedom of
choice
Workers choose where to work
Businesses choose what to
produce and sell, and at what
price
Customers decide what they
want to buy, from where, and
at what price
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People trade things they
value for things they value
more
Examples?
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People are free to compete with
other businesses that are already
established
Competition benefits society
through:
Lower prices
Better selection
Higher quality
More convenience
Workers may benefit from
competition in the form of:
Higher wages
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Incentives encourage people to
behave in a particular way
In free enterprise, money acts as
an incentive to produce goods
and services
By benefiting others, we benefit
ourselves (Adam Smith’s
“invisible hand” of self-interest)

List the five features of free enterprise and
provide an example of each
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