American Free Enterprise Chapter 3
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Transcript American Free Enterprise Chapter 3
American Free Enterprise
Chapter 3
Section 1- Advantages of Free
Enterprise System
U.S. is a capitalist economic
system
This is all based on private
ownership of the four
factors of production
Consumers are free to
choose what they buy,
producers are free to make
what they like, and make
as much profit as possible.
How Free Enterprise Works
Free Enterprise is just another name for
capitalism
You are free to start a business that provides
usefulness to consumers
Business is free to use scarce resources as
they please
Managers and workers operate these
businesses in exchange for pay
Consumers decide
what they want to
buy
They look for
goods and
services to fulfill
wants for the best
possible value
Limits of Free Enterprise
Gov’t only limits free
enterprise in small ways
ex. Can’t take advantage
of consumers with unsafe
products
Some emerging nations
using free enterprise set
more limits
Ex. Make companies offer
the same benefits
Five Freedoms of Free Enterprise
1. Right to Private Property- ability to own
your own land, thoughts, and material
items.
2. Open Opportunity- Anyone can take
part in the market by free choice. Ex. No
one can tell you that you can’t open a deli.
This creates a wide range of goods and
services to choose from. Forces all
business to be productive and efficient.
3. Legal Equality- Everyone in the
economy is protected by same economic
rights under law. Everyone has the right
to succeed or fail.
4. Free Contract- People choose which
agreements to enter into in the market
place ex. Buying a house and agreeing
to pay a mortgage
5. Profit Motiveforce that
encourages people
to improve their
wealth through
economic activity
Ex. You decide to
open a Sheetz on
Route 30 to
become wealthier
Competition in Free Enterprise
Drives prices down to
offset people true
ambitions to make as
much money as they
can
It creates reasonable
prices for the
consumer, but still
leads to profit
Ex. Gas Station Wars
Section 2- How Does Free Enterprise
Allocate Resources?
Consumers are looking to get the best
value of a good or service for their buck
Producers as looking to make as much
profit as possible
Profit- Money left over after paying for
production costs Revenue-Bills=Profit
Revenue- Money made from selling a good
or service
By trying to earn profit producers
help to allocate resources
Allocate- to set
aside or locate
scarce resources
We allocate our
money or set it
aside to fulfill wants
that we feel are
most important.
Gas, Bills, Food
Ex. Seeking Profit
Convenience Stores
They charge a reasonable
yet higher price on their
products
By convenience store A
making profit, it will
motivate Timmy to open
his own store
People allocate resources
to places they know they
will make money
Resources are
now being
allocated (set
aside) for
convenience
stores instead
of another area
This creates
competition and
variety in the
economy
Consumers Also Allocate Resources
When you buy a product you are choosing
it over another
This helps to influence what producers will
make and provide
Ex. Popularity of Energy Drinks
Ten years ago they were
not in demand
Now even the largest
soft drink companies are
making them due to
popularity
Coke and Pepsi
allocated their resources
and put more money
into making energy
drinks.
Questions
What other trends have taken place in
society where a new product causes
companies to reallocate their resources
into a new product?
How does a free enterprise system keep
their from being to many conveniences
stores in a market?
Role of Gov’t In Our Economy
Our Gov’t plays a limited role in regulating our
economy
We call this modified free enterprise
Refer to Circular Flow Model of Gov’t Interaction
in economy
Federal, State, and Local Gov’t takes tax
dollars from individuals, businesses, and
provides services ex. Military, Social
Security, Prints Money, Maintains Roads
Product and Factor Markets provide
resources for gov’t to use to operate
Ex. Gov’t workers, computers, land
Federal gov’t employs less workers, but
spends way more $ to operate
Section 3- Gov’t and Free Enterprise
Economic
Decisions
are made by
buyers and
sellers, this
is called the
free
enterprise
sector of the
economy
Public and Free Enterprise Sector
Public Sector- delivery and
services by and for the
gov’t ex. Military, Social
Security
Free Enterprise Sectormakes a good or a service
if all costs and benefits go
to the buyer and seller ex.
Ford Motor Co.
All of the goods and services provided by
the gov’t in public sector are funded by
taxes
Ex. Street lighting system
These public goods can’t be taken away
even though you don’t pay directly for
them.
Example
You do not pay a usage fee
for street lights every time
they come on. Yet,
everyone is able to benefit
from them.
Your tax dollars pay for the
lights
Public Sector Example
Military
Everyone
benefits from
protection
Your protection
does not take
away from
others
protection
Taxes
They are used to ensure
that one person does not
pay for military services or
other public goods.
They are used to make sure
all people contribute
towards public goods in
some way
It would be impossible to
charge individually for all of
these public services
Gov’t collects taxes to
prevent free riders from
taking advantage of
public goods and
services without paying
Ex. Fireworks Display,
It would be impossible
to charge everyone who
could see them to pay
for them. So city takes
the money out of tax
dollars
Example of Free Riders
Living on a
hippie
commune
Public and Private Sectors Share
Responsibilities
Private Sector- Businesses looking to make
profit ex. Pat’s Market
Public Sector- gov’t goods and services
Ex. Paying a toll on the turnpike
Highway is built with some federal and
state money
The rest of the highway we pay for in tolls
Most
infrastructure,
mass transit,
highways, water
and sewer, is
funded by both
the private
sector- citizens
and the public
sector- gov’t
Managing Externalities
Externality- side
effect that affects
someone other than
buyer or seller
Negative Externalityimposes costs on
people who were
not involved
Ex. First Energy and
the Black Rain in
Shippingport
Positive Externality
This creates benefits for people who were
not involved with economic activity
Ex. I build a tire factory in Hookstown. It
will create jobs, bring in other businesses,
and increase home values
Gov’t works to increase these positive
externalities
Gov’t Subsidies
Gov’t provides money to help cover the
cost of an economic activity that may help
lots of people.
Ex. Gov’t provides subsidies to open a free
health clinic. It would benefit a whole
community
What would be another example of a
community benefit through subsidy
money?
Public Transfer Payments
Gov’t also helps the sick, elderly, and poor
in tough times
Gov’t provides safety net programs to
protect people from economic hardship
Ex. Welfare, Social Security, Grants
Poverty in America
A family of four making
less than $20,000 a
year live below poverty
level 12% of U.S. pop
Some families are poor
for along time, but
most move in and out
of poverty over the
years
Transfer Payments
Gov’t works to create jobs and helps
through transfer payments- Transfer of
income from one person or group to
another even though the payer receives
nothing in return
Private and Public Transfer Payments
Private Transfer Payments- this could be
help from a family, friend, or charity
Public Transfer Payment- comes from the
gov’t using tax dollars that you don’t have
to pay back.
Ex. Welfare, Social Security,
Unemployment