Download The Basic Principles of Free Enterprise

Basic Principles of Free Enterprise
• Define “Land of Opportunity”
• List personal examples of those you know
who have started businesses and reasons for
doing.
• Can you think of any famous examples of
individuals taking small ideas and creating
an empire?
The Basic Principles of Free Enterprise
Chapter 3 section 1
Several key characteristics make up the basic
principles of free enterprise.
1. Profit Motive
The drive for the improvement of
material well-being.
2. Open opportunity
The ability for anyone to
compete in the marketplace.
3. Legal equality
Equal rights to all.
4. Private property rights
The right to control your
possessions as you wish.
5. Free contract
The right to decide what
agreements in which you
want to take part.
6. Voluntary exchange
The right to decide what
and when you want to buy
and sell a product.
7. Competition
The rivalry among sellers
to attract consumers.
The Consumer’s Role
•A fundamental purpose of the free enterprise system is to give
consumers the freedom to make their own economic choices.
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.
Consumers can also make their
desires known by joining interest
groups, which are private
organizations that try to persuade
public officials to vote according
to the interests of the groups’
members.
The 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.
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, such as environmental protection,
sanitary food production.
How Government Agencies
Affect Our Lives
• Federal Agencies try to maintain fair
prices and the quality of products by
establishing regulations. Every day,
our lives are influenced by these
regulations.
• Use page 55 to try to figure which
Government agency would regulate
each situation in this family’s daily
life.
How Government Agencies Affect Our Lives
• 7:30 am Linda Lee is getting ready for her parttime job. However, the curling iron she is using is
not heating properly. She checks to see when the
warranty runs out.
• 8:00 am Over breakfast, Linda’s father shows the
family the newly designed helmet he has to wear
at the plant.
• 8:30 am Linda’s mother backs her car out of the
garage. The automatic garage door closes when
she presses the button on the car’s radio
transmitter.
• 9:30 am Mr. Lee goes to the supermarket to do
the food shopping. He checks the labels on several
boxes of cereal to compare their nutritional
content.
• Noon At lunch hour Linda goes to an electronics
store to buy a new stereo. This store’s ad seemed
to give truthful, complete information
• 2:00 pm Mr. and Mrs. Lee attend a special
meeting at the town hall. The townspeople are
attempting to clean up the pollution in a nearby
lake.
• 4:00 pm Cable TV service has just come to the
area. Linda’s younger sister enjoys the children’s
programs that the community college produces for
the cable company’s “public access” channel.
• 7:00 pm Linda’s parents watch a business report
on the investigation of investment counselors
accused of defrauding their customers.
Promoting Growth and Stability
Section 2
Tracking Business Cycles
• Macroeconomics is the study
of the behavior and decision
making of entire economies.
• A business cycle is a period
of a macroeconomic
expansion followed by a
period of contraction.
• 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.
Promoting Economic Strength
Policymakers pursue three main outcomes as they seek
to stabilize the economy.
Employment
• One aim of federal economic policy is to provide jobs for
everyone who is able to work.
Growth
• For each generation of Americans to do better than previous ones,
the economy must grow to provide additional goods and services.
Stability
• Stability gives consumers, producers, and investors confidence in
the economy and in our financial institutions, promoting
economic freedom and growth.
Technology and Productivity
• America has a far greater G.D.P. than
most of the world.
• High Standard of Living is preserved by
increasing productivity: ie.--Shifting the
Production Possibilities frontier outward.
(To the Right)
Encouraging Innovation
•The government encourages the development of new technologies in several
ways. Technology is the process used to produce a good or service.
• Federal agencies fund many
research and development
projects. Also, 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
• A public good is a shared good or service
for which it would be impractical to make
consumers pay individually and to exclude
nonpayers.
– Funded by the public sector, purchases made by
the government through taxpayers’ dollars
Your federal, state, and local governments provide many
goods and services for your community. What public goods
and services are represented by the structures pictured
below?
Market Failures
A market failure is a situation in which the market, on its
own, does not distribute resources efficiently.
• If the government stopped collecting taxes, a market
economy would fail to provide the incentive to
produce certain goods and services.
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.
Providing a Safety Net
The Poverty Problem
The poverty threshold is an income level below that
which is needed to support families or households.
• Welfare is a general term that includes several
redistribution programs of government aid to the
poor.
• 2010- family of 4 poverty level is $22,050
Redistribution Programs
Cash transfers are direct payments of money
to eligible people.
Social Security
Social Security provides direct cash transfers of retirement
income to the nation’s elderly and living expenses to the
disabled.
Unemployment
Unemployment compensation provides money to eligible
workers who have lost their jobs.
Workers’ Compensation
Workers’ compensation provides a cash transfer of state funds
to employees injured while on the job.
Other
Redistribution Programs
• Medical benefits
• Health insurance is provided by the government for the
elderly and disabled (Medicare) and 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.
Business and Government
• The government plays an important role in
regulating business and industry. However,
businesses also influence government. For
example, lobbyists impress their ideas on
our elected representatives. Businesses also
contribute money to the election campaigns
of people who agree with their ideas. And
government is usually very sensitive to the
needs of business, for if businesses are hurt,
their employees are also hurt.
Assume you own a factory that makes children’s clothes for both the U.S. and
export. Would you support or not support each proposal and why?
• 1. Stricter pollution controls on electric generating
stations.
• 2. Higher standards of quality for clothing.
• 3. A tax on imported clothing that will raise its price
by 15%.
• 4. Government support for day care for single
parents with children.
• 5. An import tax on inexpensive foreign fabrics,
raising the price 20%.
• 6. Deregulation of the trucking industry designed to
increase competition among firms that transport
manufactured goods.
• 7. An increase in the business tax to help reduce the
federal budget deficit.