Download American Free Enterprise

American Free Enterprise
Class Discussion
• Historically, Americans have traditionally favored
economic freedom over economic regulation.
Why do you think that is?
• What is the role of consumers in our “free
enterprise system?”
Investopia on Free Enterprise
“In principle and practice, free markets are defined by
private property rights, voluntary contracts and
competitive bidding for goods and services in the
marketplace. This is held in contrast to public ownership
of property, coercive activity and fixed or controlled
distribution of goods and services.
In western politics, free enterprise is associated with
laissez-faire capitalism and philosophical libertarianism.
However, free enterprise is distinct from capitalism.
Capitalism refers to method by which scarce resources
might be produced and distributed. Free enterprise
refers to a set of legal rules regarding commercial
interaction.”
Friedrich Hayek, Nobel-winning economist
• Free enterprises is a "spontaneous order"
– Planning and regulation arise out of the
coordination of decentralized knowledge
among innumerable specialists, not
bureaucrats.
Key Questions
• How does the government protect Americans’
economic rights within our system of free
enterprise?
• What policies does the government create to
serve the public interest?
• How does the government intervene to
protect public health, safety, and well-being?
• What role does the government play in
fighting poverty?
Key Questions
• What government programs attempt to aid those
facing poverty?
• What is a market failure?
• What are public goods?
• How does government manage externalities?
• How does the government track and seek to influence
business cycles?
• How does the government try to promote economic
strength?
• Why and how does the government encourage
innovation?
Public Interest and Regulation
• Concerns of the public as a whole
– Government responds with laws/public policy
• Ex. Public disclosure laws
• Consumer influence on public policy
– Voting, interest groups
• Many federal agencies regulate industries whose
goods and services affect the well-being of the
public.
Poverty and Government Assistance
• Poverty Threshold
– Income level unable to support families or
households.
– Federal government records statistics and
determines how many people need help
• Welfare
• Cash transfers
Cash Transfers Examples
1. Temporary Assistance
for Needy Families (TANF)
This program allows
individual states to decide
how to best use federally
provided funds.
3. Unemployment
Insurance
Unemployment
compensation provides
money to eligible workers
who have lost their jobs.
2. Social Security
Social Security provides
direct cash transfers of
retirement income to the
nation's elderly and living
expenses to the disabled.
4. Workers' Compensation
Worker's compensation
provides a cash transfer of
state funds to employees
injured while on the job.
Other Redistribution Programs
• In-kind benefits
• Goods and services provided by the government
for free or at greatly reduced prices
• Medical benefits
– Medicare
• Insurance provided for elderly and disabled
– Medicaid
• Insurance for poor people unemployed or not
covered by insurance
Market Failures
• Would the free market ensure that roads are
built everywhere they are needed?
• Situation in which the market, on its own,
does not distribute resources efficiently.
• Government funds necessary items
• Crash Course video
Public Goods
• Shared good/service for which it would be
impractical to make consumers pay
individually and to exclude nonpayers.
– Funded by the public sector
• Free rider
– Someone who would not choose to pay for
a certain good/service, but who would get
the benefits of it anyway if it is provided as
a public good.
Externalities
• An economic side effect of a good or service
that generates benefits or costs to someone
other than the person deciding how much to
produce or consume.
The building of a new dam and creation of a lake generates:





Positive Externalities
a possible source of hydroelectric
power
swimming
boating
fishing
lakefront views

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Negative Externalities
loss of wildlife habitat due to
flooding
disruption of fish migration along
the river
overcrowding due to tourism
noise from racing boats and other
watercraft
Tracking Business Cycles
• Macroeconomics is the study of the behavior
and decision making of entire economies.
– Think BIG economics
– A business cycle is a period of macroeconomic
growth followed by a period of contraction.
• Gross domestic product (GDP)
– Dollar value of all final goods and services produced
in a certain economy. GDP is one measure of a
nation’s macroeconomy.
Promoting Economic Strength
• Policymakers pursue three main outcomes as
they seek to stabilize the economy.
1. Employment
2. Growth
3. Stability
Encouraging Innovation
• The government encourages the development
of new technologies in several ways.
– Federal agencies fund many research and
development projects.
– A patent gives the inventor of a new
product the exclusive right to produce and
sell it for 20 years.
Interesting Economics Video
• Video
• Mruniversity.com