Marketing Essentials

Chapter 5: The Free Enterprise System

Chapter Summaries

Section 5.1

• The characteristics of a free enterprise system are freedom of ownership, freedom to compete, freedom to make a profit, and freedom to take risks.
• Price competition involves competing with a lower price, while nonprice competition involves factors other than price, such as special services and an excellent reputation.
• The economic cost of unprofitable businesses includes loss of jobs, loss of revenue to investors and to the government, and increased government costs for social services. The benefits of successful firms include increased employment, better returns for investors, more sales revenue for supporting companies, more tax revenue for the government, higher charitable donations, and more competition.
• Supply and demand interact to create price. Theory suggests that as prices rise, demand drops. As prices increase, supply increases. The equilibrium point is where the supply and demand curves meet. At that price, consumers are willing to buy the same number of items as suppliers are willing to sell.

Section 5.2

• Unlike profit-oriented businesses, which keep their profits, nonprofit organizations use the money they make (profit) to fund the causes identified in their charters.
• The public sector consists of all organizations and agencies funded by the government. The private sector consists of all nongovernmental organizations and businesses.
• The major types of businesses that comprise the industrial market are extractors, construction companies, manufacturers, wholesalers, retailers, and service-related companies.