Download property - cloudfront.net

American Free Enterprise
Ch. 3
Principles of Free Enterprise
• Profit Motive
• Open Opportunity
– aka. Equality of Opportunity
• Economic Rights
– Legal Equality
– Private Property
– Freedom of Contract
What is the Government’s Role
in the Economy?
• Protect economic rights
• Provide public goods
• Provide safety nets
Private Property
• Private Property - property that is under the
control of a single individual or group of
individuals collectively.
– Real Property - land and anything that is
permanently attached to the land.
– Personal Property - all other property that is
movable and not fixed to the land.
• Public Property - property that is controlled
by the state or a community.
Private Property Rights
• There are many “rights” associated with
owning private property, such as:
– The right to control of the use of the property
– The right to any benefits from the property
• ex. mining rights and rent
– The right to transfer or sell the property
– The right to exclude others from the property.
The Constitution Protects
Private Property
• 5th Amendment:
“No person shall… be deprived of life, liberty or
property without due process of law; Nor shall
private property be taken for public use without
just compensation.”
What Is a Public Good?
• A public good is a shared good or service for
which it would be inefficient or impractical
– To make consumers pay individually
– To exclude non-payers.
• Examples:
–
–
–
–
Roads & Bridges
Dams
National Parks
The Space Program (NASA)
When Should Something Be
Considered a Public Good?
• Cost is critical in determining whether
something gets produced as a public good:
– The benefit to each individual is less than than the
cost individuals would pay privately; and
– The total benefits to society are greater than the
total costs.
• Under these circumstances, the private sector
has little incentive to produce the good and so
the government must step in.
The Free-Rider Problem
• A free-rider is someone who would not
choose to pay for a certain goods/services,
but who would benefit anyway when they are
provided as a public good.
– Free-riders consume what they do not pay for.
• Examples ???
What Are Externalities?
• An externality is an economic side effect of
a good or service that generates a benefit or
cost to someone other than the person
making the economic decision
– Positive Externalities - beneficial side effects
– Negative Externalities - unintended costs
The Government Decides to
Construct a New Dam…
Positive Externalities
• Opportunities for
recreation (swimming,
boating, fishing);
• Increased home values
for homes with lake
front views
• Reduced flooding
during the winter.
Negative Externalities
• Loss of wildlife habitat
due to flooding above
the dam;
• Over crowding due to
tourism;
• Noise from racing boats
and other watercraft.
Market Failures
• A market failure is a situation in which the
market, on its own, does not distribute resources
efficiently.
– The free-rider problem is an example of a market
failure because the market is not producing certain
goods/services
– Externalities are also market failures because the
costs/benefits are not assigned properly.
Market Failures cont.
• The government steps in to correct these
failures by:
– Providing the public with certain
goods/services;
– Encouraging the creation of positive
externalities and limiting negative externalities
Your Turn - Think About It!!
• The City decides to purchase an abandoned
metals processing plant and the surrounding
land
• The city wants to tear down the building and
turn the land into a recreational park for city
dwellers, complete with basketball courts,
baseball fields, tennis courts, a swimming pool
and bike paths.
• What are the pros and cons of this plan?
What is a Safety Net?
• Safety Net – Government programs that
protect people experiencing unfavorable
economic conditions.
• Wealth Redistribution Programs
– Welfare – a general term that refers to
government aid to the poor;
•
•
•
•
Temporary Assistance for Needy Families
Social Security
Unemployment Insurance
Medicare/Medicaid