Download Benefits of Free Enterprise Chapter 3 Section 1

Benefits of Free Enterprise
Chapter 3 Section 1
How does this photo represent the
American Free Enterprise system?
Basic Principles of Free Enterprise
• There are several key characteristics that make
up free enterprise.
– Profit Motive
– Open Opportunity
– Legal Equality
– Private Property Rights
– Free Contract
– Voluntary exchange
– Competition
Features of American Free
Enterprise
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Profit Motive
Open Opportunity
Legal Equality
Private Property Rights
Free Contract
Voluntary exchange
Competition
• As we go through each,
give an example of each
in your daily life
Profit Motive
• The drive for the
improvement of
material well-being.
• Making money is the
most important aspect
of motivation
Private Property Rights
• The right to control
your possessions as you
wish.
• You may own a and
operate a business at
any place of your
choosing.
Open Opportunity
• The ability for anyone
to compete in the
marketplace.
• Anyone can enter and
leave the market at
their own will
• One can also make any
product they wish
Legal Equality
• Legal rights to all
• All people and
companies are
protected with the
same rights, rules,
and regulations
Free Contract
• The right to decide
what agreements in
which you want to take
part.
• You have the sole
responsibility to ensure
contracts are fair
Voluntary Exchange
• The right to decide
what and when you
want to buy and sell a
product.
• In reality…the consumer
controls the economy
with their wants and
needs
• Consumers can decide
how to exchange goods
and services
Competition
• The rivalry among
sellers to attract
consumers.
• Business fight each
other for consumer
dollars….Profit Motive
• The key is to show why
consumers need to
have their product
The Consumer’s Role
• A fundamental purpose
of the free enterprise
system is to give
consumers the freedom
to make their own
economic choices.
Consumer’s Role
• Through their economic
dealings with
producers, consumers
make their desires
known.
• When buying products,
they indicate to
producers what to
produce and how much
to make.
Interest Groups
• Consumers can also make
their desires known by
joining interest groups
• They are private
organizations that try to
persuade public officials to
vote according to the
interests of the groups’
members.
– NRA (National Rifle
Association)
– PETA (Ethical Treatment of
Animals)
– NEA (Advocate of Educational
Professionals)
From what aspects of the free enterprise
system benefit this person?
Government’s Role
• Americans expect the government to protect them
from potential problems that arise from the
production of various products or the products
themselves.
Which One Would You Feed Your Pet?
Which Is Less Expensive? Less Expensive?
Product B
Product A
Worst Dog Food
Product A
• These dog foods contain the
worst dog food ingredients
you will find because there is
no government regulation
• They are comprised mainly of
by-products; carcinogenic
flavors and preservatives;
cheap, unhealthy fillers, and ...
Heaven only knows what else!
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Alpo Dog Food
Beneful Dog Food
Diamond Dog Food
Kibbles N’ Bits Dog Food
Pedigree Dog Food
Purina Pro Plan Dog Food
Purina One Dog Food
Science Diet Dog Food
Best Dog Food
Product B
• They have an ideal
balance of protein, fats,
and carbohydrates
• No ‘empty calories.’
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Wellness Dog Food
Solid Gold Dog Food
Blue Buffalo Dog Food
EVO Dog Food
Innova Dog Food
Public Disclosure Laws
• Laws that require
companies to provide
consumers with
important information
about their products
– such as fuel efficiency of
automobiles
– side-effects of
medication.
Public Interest
• Both state and federal governments’ involvement
in concerns of the public as a whole
– environmental protection
– sanitary food production.
Promoting Growth and Stability
Chapter 3 Section 2
Tracking The Business Cycle
• The business cycle is a
period of a expansion
followed by a period
of contraction.
• This can be explained
by using:
– Macroeconomics
– Microeconomics
Macroeconomics
• Macroeconomics is
the study of the
behavior and
decision making of
entire economies.
– Think big picture
economics
Microeconomics
• Microeconomics is the
study of the economic
behavior and decision
making of small units.
– Think individual
businesses
Gross Domestic Product
• One measure of a
nation’s macroeconomy
is gross domestic
product (GDP).
– GDP is the total value of
all final goods and
services produced in a
particular economy.
• GDP will tell us if an
economy is healthy or
unhealthy
Gross Domestic Product
• How does the growth of
GDP reflect the
strengths of the free
enterprise system?
Government and The Economy
• Policymakers pursue
three main outcomes
as they seek to
stabilize the economy.
– Employment
– Growth
– Stability
Employment
• One aim of federal
economic policy is to
provide jobs for
everyone who is able to
work.
Growth
• The economy must
grow to provide
additional goods and
services.
– Each generation of
Americans strive to do
better than previous
ones
Stability
• Stability gives
consumers, producers,
and investors
CONFIDENCE in the
economy and in our
financial institutions
– promoting economic
freedom and growth.
Technology and
The Economy
• The government
encourages the
development of new
technologies in several
ways.
• Technology is the
process used to
produce a good or
service.
Encouraging Innovation
• Federal agencies fund
many research and
development projects.
• New technology often
evolves out of
government research.
• A patent gives the
inventor of a new
product the exclusive
right to produce and
sell it for 20 years.
Providing Public Goods
Chapter 3 Section 3
Public Goods
• A public good is a
shared good or service
for which it would be
impractical to make
consumers pay
individually and to
exclude nonpayers.
• Government provides
these goods
– Usually from taxpayer
dollars
Public Sector
• Public goods are funded by the
public sector
– the part of the economy that
involves transactions of the
government.
– Taxes
• Some good are:
– Defense and law enforcement
(including the system of property
rights)
– public fireworks
– Lighthouses
– clean air
– other environmental goods, and
information goods, such as
software development, authorship,
and invention
Free Rider
• A free rider is someone
who would not choose
to pay for a certain
good or service, but
who would get the
benefits of it anyway if
it is provided as a public
good.
Question??
Would the free market ensure that
roads are built everywhere they are
needed?
Answer:
It’s doubtful. Neither could individuals
afford to pay for a freeway.
Mr. Coats is my favorite teacher
Market Failure
• A market failure is a
situation in which the
market, on its own,
does not distribute
resources efficiently.
Creation Of A Public Good: STEP 1
Who Will Benefit, Who Will Pay
Proposal
Farmers want a
local river to be
dammed
Benefit
Cost
The dam will
provide flood
protection
If an individual farmer
were to build the
dam, the cost would
outweigh his benefits
Decision: No
All the farmers would
benefit from a dam
but no single farmer
would build it
Creation Of A Public Good: STEP 2
A Public Good Is Created
Proposal
The government
considers funding
the dam
Benefit
The dam will
provide flood
protection
Decision: Yes
The government
will fund the project
Cost
If the cost is shared
among all farmers, the
cost to each farmer will be
less than the benefit to
each farmer
Result
The benefits of the dam
extend to so many people
that their shared benefit
exceeds the total cost of
the dam
If the farmers also wanted irrigation ditches built
to carry the lake water the their fields, would
the ditches be built as a public good?
Externalities
• An externality is 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:
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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
What groups of people might feel the
greatest impact from the new dam?
POSITIVE
NEGATIVE
Providing A Safety Net
Chapter 3 Section 4
The Poverty Problem
• The poverty threshold is
an income level below
that which is needed to
support families or
households.
Is It Possible To Be In Poverty But Still
Make Money?
Welfare
• The poverty threshold is
determined by the
federal government and
is adjusted periodically.
• Welfare is a general
term that refers to
government aid to the
poor.
Why Are People Upset At The Welfare
System?
Redistribution Programs
• Cash transfers are direct payments of money
to eligible people.
Cash Transfer Programs
Other Programs
• In-kind benefits
– goods and services provided by the
government for free or at greatly
reduced prices.
• Medical benefits
– Health insurance is provided by the
government for the elderly and
disabled (Medicare)
– Health insurance for poor people
who are unemployed or are not
covered by their employer’s
insurance (Medicaid).
• Education benefits
– Federal, state, and local
governments all provide
educational opportunities for the
poor.