Guided Reading Activity Answer Key
The American Free Enterprise System
Lesson 1 American Free Enterprise Capitalism
A. Characteristics of Free Market Capitalism
1. free markets; capitalism
2. buy; work; hire; risk
3. voluntary exchange; buyers; more; sellers; less; benefit
4. private property rights; borrow; invest
5. Profit motive; material; profit
6. scarce; competition
B. Benefits of Free Market Capitalism
1. capitalism; democracy
2. wants; variety
3. change; resources
4. products; less; progress
5. wealth; tangible; transferable
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C. Disadvantages of Free Market Capitalism
1. Great Recession; 4.5; 5
2. rich; poor; socialist
3. supply; combine; competition; demand
4. individuals; contracts; property; vote
Summary and Reflection
A capitalistic free enterprise system has five important characteristics: economic freedom, voluntary
exchange, private property rights, the profit motive, and competition. Economic freedom means that
you have the freedom to choose your career, your employer, and where you work. Voluntary exchange
means that buyers and sellers freely and willingly engage in market transactions, and they do so
because they believe that they will benefit from the exchange. Private property rights allow people to
own and control their possessions. Private property gives people the incentive to work, save, and invest
as they wish. People are free to risk their property as they wish, and profit motive will encourage
people to innovate and leads to economic growth. The struggle among sellers to attract buyers, or
competition, helps to ensure that unpopular products will no longer be made; producers will always
be working to bring newer, better, and less expensive products to the market. This ensures that scarce
resources will be used as efficiently as possible.
Student answers will vary on which advantage or disadvantage they think is the strongest, but answers
should be well argued and supported with information from the lesson.
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