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Free Enterprise System Encourages individuals to start and operate their own businesses without government involvement. Free Enterprise System…..What other names does our economy have? Private Enterprise System Market Economy Capitalistic Economy Basic Principles of the Free Enterprise System Freedom to own personal property and do with it whatever we choose Cars, computers, land, homes Start and operate the business of your choice The government allows you to run your business however you see fit and without interference Competition • The struggle between companies for customers • The government will not compete against you. • Why does the government want us to open new businesses? How does this improve our economy? Two types of competition • Price Competition – The business focuses on the sale price of the product. – The assumption is that with all other factors being equal, customers will purchase the item with the lowest price. • Non-price competition – Businesses choose to compete on the basis of factors that are not related to price. • Factors include: – – – – Quality of the products Service and financing Business location Reputation MONOPOLY – It’s illegal!!! No, not the board game!!! The exclusive control over a product or the means of producing it. Examples: AT&T Microsoft Risk is defined as the potential for loss or failure in relation to the potential for improved earnings. Whenever individuals choose to operate their own business, they run the risk of losing (or gaining) all that they invest. As the potential for earnings gets greater, the risk increases accordingly. Profit The money earned from conducting business after all costs and expenses have been paid. If you sell a coke for $1.09 your profit is not $1.09, you must first deduct the amount the store paid to stock the drinks and a percentage for overhead. Economic Cost What is the economic cost of an unprofitable firm to the community? What are the economic benefits of having a successful firm in the community? What is an economy? An economy is defined as….the way a nation makes its economic choices. What exactly does that mean?? Just think MONEY!!! How does our money move through the economy? What do we do to keep it moving through the economy? How does the government get money? Did you say taxes? Yes, they get money through our tax dollars. If we are paying in so much money, what do we get in return? The answer to these questions can be answered by learning the roles of government in our economy. The Role of Government The Government plays four roles in our Free Enterprise System They are: – Provider of Services – Supporter of Business – Regulator – Competitor Provider of Services • What services does the government provide? • Roads, bridges, free education, public libraries, military, fire department, police, Medicare, Medicaid, WIC, and sanitation centers. Supporter of Businesses Disaster Assistance SBA – Small Business Administration All government purchased items must be purchased from US companies The government is the single largest consumer of goods and services in the US Tariffs and trade agreements Regulator Making laws is one of the principal functions of government. In the US, most laws are made to protect the safety, health, and welfare of individuals and the freedom of businesses to operate in our free enterprise system. Regulators – Consumer & Worker Protection Agencies that are specifically set-up to protect the individuals while they are at work and to protect the consumer when purchasing products. Consumer & Worker Protection FDA – Food & Drug Administration (proper labeling of food & drugs, lack of contaminents, research into new drugs and their benefits) EEOC – Equal Employment Opportunity Commission OSHA – Occupational Safety and Health Administration CPSC – Consumer Product & Safety Commission FEMA – Federal Emergency Management Agency DEA – Drug Enforcement Agency EPA – Environmental Protection Agency FDIC – Federal Deposit Insurance Corporation FTC – Federal Trade Commission Licensing Minimum Wage (truth in advertising, labeling, monopolies) Regulators – Business Protection Patents Copyrights Trademarks Licensing Agreements Sherman Antitrust Act (1890) Clayton Antitrust Act (1914) Predatory Pricing, Monopolies, FTC Competitor Agencies operated by government that competes with private enterprise TVA USPS Amtrak Parks and Campgrounds The Role of the Consumer Supply Demand Shortage Surplus Equilibrium Supply The amount of goods producers are willing to make and sell. As prices rise, producers are willing to produce more. As prices go down, producers are willing to produce less Demand Consumer willingness and ability to buy products As price goes up, consumers are not as willing to buy. As price goes down, consumers are willing to buy more. Surplus & Shortage Surpluses occur when supply exceeds demand. If prices are too high or quality not good Shortages occur when demand exceeds supply. Think GASOLINE!!! We pay whatever they charge because we have to have it EQUILIBRIUM When the amount of product being supplied is equal to the amount being demanded, equilibrium occurs. Customers are able to purchase products at a fair price and businesses are able to maintain a steady flow of business. Great Depression When? Why? Federal Reserve System Who are they? What do they do? Interest rates How do interest rates affect the economy?