Download Chapter 2.3 Capitalism and Economic Freedom

Chapter 2.3
Capitalism and Economic Freedom


Objective: To explore the characteristics of a
free enterprise system
Describe the role of the entrepreneur, the
consumer and government in a free enterprise
economy
Introduction



A market economy is normally based on system
of capitalism, where private citizens, many of
whom are entrepreneurs, own the factors of
production
Free enterprise is another term used to describe
the American economy
In a free enterprise economy, competition is
allowed to flourish with a minimum of
government interference
Competition and Free Enterprise


With economic freedom, people and businesses
make their own economic choices
The result of voluntary exchange, in which
buyers and sellers are free to decide whether or
not to complete a transaction, results in both
buyers and sellers believing that the good or
service obtained is of more value than the
money or product given up
Competition & Free Enterprise


The profit motive encourages entrepreneurship
and is largely responsible for the growth of a
free enterprise economy
Competition among sellers helps lower prices
Thinking Critically
Q: Understanding Cause and Effect How has the
development of transportation and
communication systems affected the type of
economy that exists in the U.S.?
A: Freedom of movement of people and ideas
has allowed the U..S. to develop a strong Market
economy
Thinking Critically
Q: Making Inferences what incentive does owning
private property give people?
A: Private property gives people the incentive to
work harder, to save, to invest and to succeed
Competition and Free Enterprise
Figure 2.2
Characteristics of Free Enterprise and Capitalism
The role of the Entrepreneur



Entrepreneurs use land, capital and labor to
make a profit
When an entrepreneur is successful, everybody
benefits. Successful entrepreneurs attract other
firms to the industry
The entrepreneur’s search for profits leads to
new products, greater competition, more
production, higher quality and lower prices for
consumers
The Role of the Consumer


The consumer has much power in a free market
economy. Consumer sovereignty describes the
role of the consumer as ruler of the market
Consumers in the American economy express
their wants in the form of purchases in the
market place. The dollars they spend are the
“votes” used to select the most popular
products
Discussion Questions
Q: How are entrepreneurs and consumers
dependent on each other?
A: Entrepreneurs make goods available to
consumers, while consumers guide
entrepreneurs regarding what will and will not
successfully sell
The Role of Government


As a protector, a government may pass and
enforce laws meant to prevent the abuse of
consumers and workers
Governments are both providers and
consumers. The U.S. government provides
education and welfare and is the second largest
consuming group in the economy after
consumers
Role of Government


As a regulator, the government works to
preserve competition
The promoting of national goals is an important
role of any government. In the U.S., achieving
economic equity and security has resulted in a
mixed economy, or modified private enterprise
economy
Market Systems
Private Ownership
2. Interaction of market forces
(supply and demand) determines
what will be made, how and for whom.
What gets produced is “voted” on by
people’s money (prices)
1.
Founder: Adam Smith
Examples: U.S., England, etc. Unless Mixed distinction
Vocab: Laissez Faire: “let it be” =
keep gov’t out of it, A.K.A Pure Capitalism
Mixed Systems
USA: Mostly Market Economy, but with
some Gov’t interference
1. US GOV: produces
some goods/services
National Defense
Interstate Highway system
Mixed Systems
1. US GOV: produces
some goods/services
Public Works
Hoover Dam
Golden Gate Bridge
Erie Canal
Mixed Systems
USA: Mostly Market Economy, but with
some Gov’t interference
2. Influences What/How/For Whom
only when national need or for
minimum standards