EC15 Learning Guide Key

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New York University *

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207

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Economics

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Feb 20, 2024

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LEARNING GUIDE KEY OBJECTIVE A 1. Every society develops a system for making decisions about how it will use its resources to meet the needs and wants of its people. Each of these economic systems must answer these three basic questions: (6 points; 2 points each) • What goods and services will be produced? • How will these goods and services be produced? • For whom will these goods and services be produced? 2. In a private enterprise system, the basic economic questions are answered by individuals and businesses, not by the government. Individuals and groups (rather than government) own or control the economic resources—human and natural resources and capital goods—used to produce goods and services. (6 points) 3. The private enterprise system is often called a market economy, or a market system, because markets, not the government, answer the economic questions of what, how, and for whom to produce. (6 points) 4. Answer will vary; however, students should include any five of the following freedoms that businesses have in the marketplace of a private enterprise system: (10 points; 2 points each) • Determining what they wish to produce • Determining which resources to purchase • Determining what techniques of production to use • Determining how their goods or services will be marketed • Determining what price(s) they will charge • Determining when to close down or go out of business 5. In a private enterprise system, consumers may purchase anything that can legally be sold as long as they are able to pay for it. Each time a consumer makes a purchase, s/he is casting an economic vote in the marketplace. These economic votes enable consumers to control what will be produced. In the long run, if consumers don’t buy a product, the producer must change it, replace it, or go out of business. Products that don’t sell must be replaced by something consumers do like if the producer wants to make a profit and stay in business. It is the responsibility of consumers to be well informed and to make educated choices in the marketplace so that producers will continue to make good products at fair prices. (6 points) 6. Answers will vary; however, students should list three examples of anything of value that they own. (6 points; 2 points each) LAP-EC-015-CS ©2019, MBA Research and Curriculum Center® People Power 1

LEARNING GUIDE KEY (cont’d) 7. The private enterprise system that exists in the United States is not a pure private enterprise system because there is a limited amount of government control. This private enterprise system is considered a mixed system—individuals and businesses are the primary economic decision makers, while government helps regulate and control the system. The government steps in only to protect citizens; otherwise, it lets them pursue their own goals. (6 points) 8. Competition is a rivalry between two or more businesses to attract scarce customer dollars. Therefore, a business must obtain and use resources efficiently. This will help the company keep its prices competitive with those of other firms. Other ways in which businesses compete for customers are by giving better credit options than those offered by rival companies, improving goods and services, creating new goods and services, and providing better service than their competitors. (6 points) 9. Profit is the monetary reward business owners receive in return for taking the risk involved in starting a business. The desire to make a profit, called the profit motive, forms the economic basis for the private enterprise system. If a business did not make a profit, it would eventually cease to exist. The freedom to use your private property to make a profit is as important as the freedom to own private property in the first place. Profit serves as a motive, or reason, for starting a business and a goal toward which the individual or the business can work. Individuals and businesses in private enterprise can keep any profit they earn, or they can use it in any way they wish. For this reason, many people consider making a profit the greatest motivating factor in the private enterprise system. (6 points) 10. A private enterprise economy is often called a price-directed system because price determines what consumers buy, which jobs they will take, the success or failure of businesses, and the types of products that will be produced. Prices are important in making the system work correctly. Supply and demand work together to determine prices in a private enterprise system. Consumers indicate their demand for products by the prices they are willing to pay for them. (6 points) 11. Answers will vary but should be one of the following disadvantages of the private enterprise system: (9 points) • Unemployment. At times, production drops because sales are low. When this happens, companies may lay off workers or even go out of business. This results in periods of unemployment. • Poverty. There are still many people in the United States and in other countries with private enterprise systems who are not able to afford the basic necessities of life. • Unequal distribution of property and income. Some people own a great deal of property while others own little or none because they do not have the money to buy it. The private enterprise system does not always make it easy for people to increase their income, especially if they do not have access to higher education, training, and skills. LAP-EC-015-CS ©2019, MBA Research and Curriculum Center® People Power 2

LEARNING GUIDE KEY (cont’d) OBJECTIVE B 12. Answers will vary; however, the students should include any two of the following economic choices that individuals in a private enterprise system are free to make: (6 points; 3 points each) • We can decide how hard we are willing to work in order to achieve and maintain a standard of living. • We are free to select the standard of living that we would like to achieve. • We can choose the kind of work that we would like to do to make a living. • We can accept or reject job offers. • We can change jobs. • We are free to decide what salary or wages are acceptable. • We can move to another part of the country to take a job. • We can improve our skills in order to progress with a company. • We can go into business for ourselves. 13. The freedom to make decisions about how your private property will be used is a very important part of private enterprise. It gives you the freedom to try to make as much income as you are able. Without freedom of use, your property could not earn income for you, and its value to you would be reduced. You are also free to save as much of your income as you want, to spend it on things you want to buy, or to invest it so that it will make more money for you. In other economic systems, people may not be free to own, use, buy, and sell private property. They may be allowed to own only certain kinds of private property. The government owns and controls the economic resources and makes the economic decisions. It also means the individual’s standard of living is controlled by the government. (6 points) 14. The freedom to compete is an important economic freedom for individuals. You are free to use your abilities to compete for a scholarship at the college or university of your choice. If you are looking for a job, you are free to compete with other job seekers. If you own your own business, you can compete with similar businesses for customers. Freedom to compete allows you to market your assets to your best advantage. (6 points) LAP-EC-015-CS ©2019, MBA Research and Curriculum Center® People Power 3

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LEARNING GUIDE KEY (cont’d) 15. Answers will vary; however, students should include one of the following limits to economic freedom in a private enterprise system: (9 points) • People in a private enterprise system cannot buy anything and everything that they might like to buy. One limiting factor is competition among buyers. There are always many people who want to buy the same things. • People are limited by their own choices. If you choose to buy one thing, you may not have enough money to buy another. You may need to choose which item is more important to you. If you sell your private property to one person, you cannot sell the same property to anyone else. • Economic freedom is limited by the laws that have been created to protect people. • To have the money necessary to run the country, the government collects taxes from individuals and businesses. This restricts economic freedom since taxpayers cannot use all of their income for their own purposes. However, taxes are a necessary limit to economic freedom since they provide the money needed to pay for fire and police protection, public schools, highway construction and repair, and other services that people need to operate their businesses. Suggested Criterion Level: 80 points LAP-EC-015-CS ©2019, MBA Research and Curriculum Center® People Power 4

EC15 Learning Guide Key

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