Download American Free Enterprise

Notes: Chapter 3-American Free Enterprise
I.
U.S. Tradition of Free Enterprise
A. “Land of opportunity”
B. Have shifted from more a laissez-faire to a mixed economy
1.
Ex: the New Deal (1930s)
2.
Ex: the Great Society of the 1960s
C. The Constitution protect:
1.
Property rights
2.
Favorable taxation policies
II.
Characteristics of Free Enterprise
A. Profit motive
1.
Force that encourages people and organizations to make money
and improve their well-being
2.
People want to make money
B. Open opportunity
1.
Idea that everybody can compete in the marketplace
2.
Ex: the “American Dream”
C. Economic rights
1.
Legal equality: everyone has the same legal rights
2.
Private property rights: people have the privilege to control their
possessions as they wish
3.
Free contract: people can decide what agreements they want to
enter into
4.
Voluntary exchange: people can decide what and when they want
to buy and sell
5.
Competition: rivalry among sellers to attract consumers while
lowering costs
III.
Government Regulation
A. There is some government regulation in a free enterprise system
B. Information
1.
Consumers need good information to make informed decisions
when they make their choices
2.
Public disclosure laws
a. Require firms to provide full information about their products
b. Ex: food labels
c. Ex: Surgeon General warning
d. Ex: energy efficiency labels
C. Protecting consumers’ safety and well-being
1.
Ex: requiring seat belts and airbags
2.
Done to protect the public interest- the concerns of the public as a
whole
3.
Recalls of dangerous products
D. Negatives of regulation
1
Regulations often cost money to implement  costs passed on to
the consumer
E. Examples of government regulation
1.
Food and Drug Administration (FDA)
2.
Environmental Protection Agency (EPA)
3.
Occupational Safety and Heath Administration (OSHA)
1.
IV.
Microeconomics vs. Macroeconomics
A. Microeconomics
1.
Micro = small
2.
Study of the behavior and decision-making of small units such as
individuals, families, and businesses
B. Macroeconomics
1.
Macro = large
2.
Study of the behavior and decision-making of entire economies
3.
Gross Domestic Product (GDP)
a. Total value of all goods and services produced in a particular
economy
b. Basically shows how strong a nation’s economy is
c. Ex: the U.S. vs. Mexico
4.
Business cycle
a. Periods of expansion and contraction
b. The ups and downs of an economy
c. The government tries to prevent these swings from being too
great
V.
Characteristics of a Strong Economy
A. Low unemployment
1.
7% is considered high
2.
Unemployed people do not contribute back to the economy very
well (ex: buying goods and services)
B. Growth
1.
Ex: growing GDP
2.
For Americans- “Do you live better than your parent’s generation
did?”
C. Stability
1.
Wild fluctuations scare people
2.
Inflation = bad
3.
Banks need to be stable so they do not close
D. The government enacts policies to ensure:
1.
Employment
2.
Growth
3.
Stability
VI.
Technology and Productivity
A. Importance of work ethic: commitment to work and purposeful activity
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B. Technology
1.
The process used to produce a good or service
2.
Technology  efficiency  productivity
3.
The U.S. has always been strong on innovation and developing
technology
4.
Ex: computers
a. Doing grades on bubble sheets vs. computerized
5.
Can make certain goods, services, and skills obsolete
C. The government encourages technological development
1.
Ex: universities and other research institutions
2.
Patents and copyrights
VII.
Public Goods
A. Public goods
1.
A shared good or service for which it would be impractical to
make consumers pay individually and to exclude nonpayers
2.
Ex: roads and National Parks
3.
For some things it is simply easier to bring in taxes from all than
trying to figure out who does and does not use it
4.
For these types of goods it is better for the public sector to provide
then rather than the private sector
a. Typically the private sector would not do it because they would
not make money
i. Ex: if Yellowstone was privately owned the owners
would cut down trees and mine minerals rather than
preserve it
B. Public vs. private sector
1.
Pubic sector: part of the economy that involves the transactions of
the government
2.
Private sector: part of the economy that involves the transactions of
individuals and businesses
C. Free rider
1.
Someone who would not choose to pay for a certain good or
service, but who would get the benefits of it anyways if it were
provided as a public good
2.
Ex: you might not be willing to pay for a new road in your area but
you would use it anyway
D. Market failure
1.
Situation where the market does not redistribute resources
efficiently
2.
Often happen with public goods
VIII.
Externalities
A. Externality
1.
Economic side effect of a good or service that generates benefits or
costs to someone other than the person making the decision
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2.
Positive externalities
a. Beneficial side effects
b. Ex: building a park
3.
Negative externalities
a. Cause part of the cost producing a good to be paid by someone
other than the producer
b. Ex: someone dumps trash all over the neighborhood
B. Externalities = market failure
C. Government tries to encourage positive externalities while limiting negative
ones
IX.
Providing a Safety Net
A. Poverty threshold
1.
An income level below what is needed to support families or
households
2.
Today, it is _______.
B. What should the government do about poverty?
C. Welfare
1.
Government aid to the poor
2.
Began with FDR’s New Deal
3.
LBJ’s “War on Poverty”
4.
More criticism recently because people become dependent on
government and lose their individual initiative
D. Types of redistribution programs
1.
Cash transfers
a. Direct payments of money to eligible poor people
b. Temporary Assistance for Needy Families (TANF): cash to the
States to help run their welfare programs
c. Social Security
i. Retirement income to the elderly and living expenses to
the elderly
ii. Comes from payroll taxes
d. Unemployment insurance: workers must show they have made
attempts to get work
e. Workers compensation: money to those injured on the job
2.
In-kind benefits
a. Goods and services provided for free or at generally reduced
prices
b. Ex: food stamps
3.
Medical benefits
a. Ex: Medicare and Medicaid
4.
Education
a. Ex: Head Start and scholarships
5.
Faith-based initiatives
a. Aid to private based charities
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