Copyright © by The McGraw-Hill Companies, Inc. Study GuideStudy about the six characteristics of capitalism.of characteristics six the about you as notes take you help to below diagram the Use economy.American the in present of characteristics six the on focuses section This system.enterprise Yourmak lots. to parking ability or driveways from arealready you Perhaps store? local a to them sell you Could vacation? summer during houses paint and woul what business, own your start to wanted you If Name For use with textbook pages 40–44pages textbook Forwith use C ORGANIZING YOUR THOUGHTS DRAWINGEXPERIENCEFROM profit by set limits legal certain within them use to how systementerprise free putting controls and restrictions on them on restrictions and controls putting laissez-faire limits legal certain within them use to how capitalism competition private propertyprivate servicesand profit incentiveprofit HARACTERISTICSOF ECONOMYAMERICANTHE The money left after all the costs of production ha production of costs the all after left money The An economic system in which private individuals own individuals private which in system economic An (page 43)(page Free ______System______Free Freedom of ______of Freedom A system in which government lets people and busine and people lets government which in system A Rivalry among producers or sellers of similar produ similar of sellers or producers among Rivalry Limited ______Limited The desire to make a profit, which motivates busine motivates which profit, a make to desire The Whatever is owned by individuals or groups rather t rather groups or individuals by owned is Whatever System in which individuals are free to own the fac the own to freeare individuals which in System Date (page 41)(page KEY TERMS KEY (page 41)(page Capitalism government; another name for capitalismfor name another government; a pure market system and shows how they arethey how shows and system market pure a in business, cutting lawns or shoveling snowshoveling or lawns cutting business, in e these choices is a result of the American freeAmerican the of result a is choices these e ve been paidbeen ve d it be? Would you hire some school friendsschool some hire you Would be? it d read the summaries that follow.that Thinksummaries the read bake cookies in your kitchen at home andhome at kitchen your in cookies bake cts to win more business more win to cts the factors of production and decideand production of factors the sses make their own decisions withoutdecisions own their make sses ss owners to produce and sell goodssell and produce to owners ss Class han by government government by han (page 43)(page ______Incentive______Private ______Private tors of production and decideand production of tors Competition 2, (page 44)(page (page 43)(page (page 42)(page 2 11 Name Date Class

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READ TO LEARN • Introduction (page 40) The American economy evidences six characteristics of a pure market economic system. This sec- tion describes those characteristics. • Limited Role of Government (page 41) Another name for a market system is capitalism. Pure capitalism is called laissez-faire. This means that government lets people make their own economic decisions without interfering. Since the 1880s, however, the role of American government in economic affairs has increased. For example, government regulates the quality of certain foods, watches over the money and banking system, and inspects workplaces for hazardous conditions. In the U.S. capitalist system, individuals and businesses own the factors of production and decide how to use them, but within certain limits set by government. 1. How does the American economy differ from a laissez-faire system?

• Freedom of Enterprise (page 42) The American economy is both a capitalist system and a free enterprise system. This means that people are free to own and control the factors of production. Within certain limits set by government, you are free to go into any business you choose. These limits include zoning regula- tions, child-labor laws, and regulations concerning the disposal of hazardous wastes. 2. Why does the government put regulations and other limits on free enterprise? Copyright © by The McGraw-HillCompanies,Inc.The by © Copyright • Freedom of Choice (page 42) In a market economy, buyers determine what should be produced by choosing what they want to buy. The number of people willing to buy a product determines its success or failure. Although buyers usually make their choices freely, government sometimes sets standards for products. This protects buyers from unsafe or overpriced products. 3. What two factors determine what is offered for sale in a market economy?

12 Study Guide Copyright © by The McGraw-Hill Companies, Inc. Study GuideStudy When people invest their resources in a business, t business, a resourcesin their invest people When Private propertyPrivate begin making new products.new making begin also must companies Existing weak. be must industry For profit. a make and buyers attract to enough low b efficiency to leads Competition elsewhere. go can o If down. prices keeps competition of amount large encourages profits of lure The risk investment and to own productive assets in the in assets productive own to and investment risk is property their how control also can afford.They P capitalism. of features important most the of one profit incentive.profit b have production of costs the all after left money profit is what keeps an economy efficient and adapt and efficient economy an keeps what is profit bus causes profit of Lack produce. they products of Name • • • 5. 4. 6. Competition PrivateProperty IncentiveProfit What effect does competition have on prices and why and prices on have competition does effect What syst the to related rights property private are How economy? market a in play profit does role What (page 44)(page This is what encourages entrepreneurs to start busi start entrepreneursto encourages what is This is property that is held by individuals or groups i groups or individuals by held is that property is (page 43)(page (page 43)(page competition Date —the rivalry among producers of similar products. A products. similar of producers among rivalry —the used. Property rights are actually the rights torights the actually are rights Property used. een paid. The desire for profit is called thecalled is profit for desire The paid. een hey do so in order to make a make to order in so do hey eople are free to buy whatever they canthey whatever buy to freeare eople iness to move resources elsewhere. Therefore,resourceselsewhere.move to iness hopes of making profits.making of hopes ecause sellers have to keep costs and pricesand costs keep to have sellers ecause competition to exist, the barriers to enter anenter to barriers the exist, to competition able to change.to able ne company tries to raise its prices, buyersprices, its raise to tries company ne be able to easily leave their old industry andindustry old their leave easily to able be em of capitalism?of em ? Class nstead of by government. It isIt government. by of nstead nesses or change the kindsthe change or nesses 2, profit —the 2 13