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Reading Essentials and Study Guide
Chapter 3: The American Free Enterprise System
Lesson 2 Roles and Responsibilities in a Free Enterprise Economy
ESSENTIAL QUESTION
What are the benefits of a free enterprise economy?
Reading HELPDESK
Academic Vocabulary
catalyst something that stimulates activity among people or forces
regulator someone or something that controls activities
Content Vocabulary
entrepreneur risk-taking individual in search of profits; one of four factors of production
consumer sovereignty role of consumer as ruler of the market in determining the types of goods
and services produced
mixed or modified free enterprise economy economic system that has some combination of
traditional, command, and market economies; also see modified free enterprise economy
Key Ideas and Details
Copyright © McGraw-Hill Education. Permission is granted to reproduce for classroom use.
Complete a graphic organizer like the one below to identify the roles and responsibilities in a free
enterprise system.
Roles
Responsibilities
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NAME ________________________________________ DATE _______________ CLASS _________
Reading Essentials and Study Guide
Chapter 3: The American Free Enterprise System
Lesson 2 Roles and Responsibilities in a Free Enterprise Economy, Continued
The Role of the Entrepreneur
Guiding Question Why are entrepreneurs essential to the success of a free enterprise
economy?
Reading Progress Check
Analyzing Why are entrepreneurs considered both spark plugs and catalysts of the free
enterprise economy?
The Role of the Consumer
Guiding Question What role do consumers play in a free enterprise system?
Consumers have power in the economy. This is because they ultimately determine WHAT to produce. If
consumers like a new product, the producer will be rewarded with profits. If consumers do not buy the
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Copyright © McGraw-Hill Education. Permission is granted to reproduce for classroom use.
The entrepreneur is the person who organizes and manages the land, capital, and labor to seek the
reward called profit. Entrepreneurs are important because they start new businesses. Entrepreneurs are
usually people who want to “be their own boss.” They are willing to take risks to make their dreams
come true.
Most entrepreneurs fail, but others survive and manage to stay in business with varying degrees of
success. A few, and only a very few, manage to become fantastically wealthy. Well-known
entrepreneurs like Mark Zuckerberg, Jeff Bezos, and Steve Jobs changed the way we communicate,
shop, and work.
Despite the high rate of failure among entrepreneurs, the dream of success is often too great to
resist. The entrepreneur is both the spark plug (the one who sets-off something) and the catalyst of
the free enterprise economy. When they are successful, everybody benefits. Entrepreneurs are
rewarded with profits, a growing business, and the satisfaction of a job well done. Workers across the
country are rewarded with more and better-paying jobs. Consumers are rewarded with new and better
products. The government is rewarded with a higher level of economic activity and gets larger tax
receipts that can be used to build roads, schools, and libraries. It can provide other services for people
not even connected with the entrepreneur.
It does not stop there. Successful entrepreneurs attract other firms to the industry. They want to
rush in to “grab a share” (get a part of) of the profits. To remain competitive and stay in business, the
entrepreneur may have to improve the quality of the product or cut prices. This means that customers
can buy more for less. In the end, the entrepreneur’s search for profits can lead to a chain of events
that brings new products, greater competition, more production, higher quality, and lower prices.
Because of entrepreneurs, businesses in our economy have become very successful. Today, our Gross
Domestic Product (GDP) is twice as large as China’s. Our economy is largely responsible for making
more wealth than any other nation. None of this would have been possible without entrepreneurs.
NAME ________________________________________ DATE _______________ CLASS _________
Reading Essentials and Study Guide
Chapter 3: The American Free Enterprise System
Lesson 2 Roles and Responsibilities in a Free Enterprise Economy, Continued
new product, the firm may lose money or even go out of business. The term consumer sovereignty
reflects the consumer’s role as sovereign (ruler) of the market. The phrase “the customer is always
right” shows this power.
In recent years, producers have had outstanding successes with products ranging from fast foods to
social media platforms. Other products such as Harley Davidson perfume, flower-flavored PEZ, and
Dr. Care’s aerosol toothpaste (which kids discovered they could spray around the bathroom) were
rejected by consumers. These products are no longer produced.
Also, as people are exposed to new ideas and products, they want the benefits. For example, when
desktop computers were introduced, it wasn’t long before American consumers were purchasing more
desktop computers than televisions. This happened even though computers were barely known just 35
years ago. Then, computer laptops became more popular than desktops. Finally, computer tablets
became more popular than laptops. Today, consumers buy products made all over the world,
frequently over the Internet.
Think of the dollars that consumers spend in the marketplace like “votes” that give them a say in
what is, and what is not, produced. Because of this, consumers play an important role in the American
free enterprise economy.
Reading Progress Check
Copyright © McGraw-Hill Education. Permission is granted to reproduce for classroom use.
Recalling What is the role of the consumer in the free market economy?
The Role of Government
Guiding Question How is the role of government determined in the American free
enterprise system?
The role of government at all levels stems from the desires, goals, and hopes of its citizens.
Government has become involved in the economy because its citizens want it that way. Consequently,
government has become a protector, provider, regulator, and consumer. In general, the government’s
role in the economy works as long as the benefits outweigh the costs.
Protector
As protector, the United States government makes laws against false and misleading advertising,
unsafe food and drugs, environmental hazards (dangers), and unsafe automobiles. It also enforces laws
against abuses of individual freedoms. The U.S. Constitution even gives the government the right to
protect the private property rights of American citizens.
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NAME ________________________________________ DATE _______________ CLASS _________
Reading Essentials and Study Guide
Chapter 3: The American Free Enterprise System
Lesson 2 Roles and Responsibilities in a Free Enterprise Economy, Continued
Provider
Every level of government provides goods and services for its citizens. The national government
supplies a system of justice and national defense. It gives subsidies (economic supports) to parts of the
economy, such as agriculture. Also, it gives funding to state and local governments for programs such
as road construction. State governments provide education, highways, and public welfare. Local
governments provide parks, libraries, sanitation, and transportation services.
Regulator
In its role as a regulator, the national government is charged with preserving competition in the
marketplace. It also oversees communications, interstate commerce, and even entire industries.
These include banking and nuclear power. State governments oversee insurance rates and automobile
registrations. Local governments regulate economic activity with building and zoning permits.
The regulatory role of government is often controversial (often debated). Most businesses do not like
to be told how to run their affairs. Consumers, however, do not always know when they are at risk from
hazards. As a result, they want the government to watch over and regulate such activities.
Consumer
The tasks of protecting, providing, and regulating are expensive. This means all levels of government,
like any business, consume scarce resources to fulfill their roles. Government has grown so much in
recent years that it spends more than all private businesses combined.
Reading Progress Check
Summarizing What role does the government play in a free enterprise system?
If you wanted to start your own small business, how might the federal, state, or local government help
you in your endeavor? List a few government programs or services that might be very helpful to an
entrepreneur trying to start his or her own business for the first time.
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Copyright © McGraw-Hill Education. Permission is granted to reproduce for classroom use.
Exploring the Essential Question
NAME ________________________________________ DATE _______________ CLASS _________
Reading Essentials and Study Guide
Chapter 3: The American Free Enterprise System
Lesson 2 Roles and Responsibilities in a Free Enterprise Economy, Continued
Mixed or Modified Free Enterprise
Guiding Question Why has the free enterprise system been modified to include some
government intervention?
An unintended effect of government’s role as protector, provider, regulator, and consumer is the
development of the mixed economy, also know as a modified free enterprise economy. In this
economy, people and businesses carry on their economic affairs freely, but they are subject to some
government intervention and regulation.
Some people prefer to have no government involvement in the economy, but this is not possible.
After all, some services, such as national defense and a justice system, cannot be supplied by the
private sector alone.
Unfortunately, there is no clear answer to the question of how much government involvement is
necessary. Therefore, it has become one of the greatest unsolved questions of our times. The issue is in
the news almost daily. It has also become a rallying cry for both politicians and political parties.
If this issue is ever resolved, it will be done by the voting public. Until then, just remember that we
have a modified free enterprise economy because the majority of people want it that way.
Reading Progress Check
Copyright © McGraw-Hill Education. Permission is granted to reproduce for classroom use.
Explaining Why do Americans want government to play a role in the economy?
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