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Chapter 3
American Free Enterprise
Constitutional Protections
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The Bill of Rights provides for the
following
Property Rights
We are entitled to hold land which cannot
be taken
Taxation
Government can only tax within reason a
person or business
Principles of Free Enterprise
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Profit Motive
Why people engage in free enterprise (make $$)
Open Opportunity
anyone can compete/get in the game
Economic Rights
Legal equality (all get treated the same)
Property rights
Free Contract
Voluntary exchange (decided what to buy and sell)
Competition (multiple sellers)
Consumers
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The purpose of free enterprsie is to get
consumers to make economic choices
How do companies know what to
produce?
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Interest groups
The Government’s Role in
Free Enterprise
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Protection – make sure that products are
safe
Make sure entrepreneurs/producers share
information about products (disclosure
laws)
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Products made an a factory that uses peanuts
Fuel efficiency disclaimers
The Government’s Role
(cont’d)
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Protecting Health, Safety, and Well-being
Restrictions keep the consumers and the
market safe
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Environmental restrictions on the disposal of
hazardous materials
Public Interest
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The concerns of the public as a whole
Why Regulation is Bad
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Competition can be effected by
regulations
What is meant by this?
Can you think of examples?
Chapter 3 Section 2
Promoting Growth and Stability
Macroeconomics vs Microeconomics
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Macroeconomics
Economics of the
entire economy
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Microeconomics
Economics of small
units
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Individuals
Families
Businesses
The Business Cycle
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A period of macro economic expansion
followed by a period of contraction
Government actions try to limit
fluctuations
Promoting Economic Strength &
Stability
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3 Ways to Stabilize:
1) Employment
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Government attempts to provide jobs
(the Great Depression and the TVA)
2) Growth
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Increase the Gross Domestic Product (GDP)
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Total value of all final goods and services produced in a
particular economy
3) Stable Prices
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The government monitors and regulates certain
institutions to attempt to keep prices stable
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Governments can take actions to attempt to counter
fluctuations
How Can We Increase Productivity?
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Instill a higher Work Ethic
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the commitment to the value of work and
purposeful activity
Technology
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Makes the process to produce a good or a
service better
The government pushes for technological
advancement because it eventually increases
the national GDP.
Attempt to explain the fluctuations
of this chart
Chapter 3 Section 3
Providing Public Goods
Questions to Consider
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What would it be like if the government
decided to leave the task of road building
up to private citizens?
What problems would arise?
PUBLIC GOODS
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shared good or service for which it would be
impractical to make consumers pay individually
and to exclude nonpayers
Examples: Dams, Roads,
How are public goods funded?
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Yellowstone National Park
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Taxes
was created by the government
What does it cost to go there?
Little to nothing
Benefits of Public Goods
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Value
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Not changed by multiple uses
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You can drive on a road thousands of others have
used
Costs and Benefits
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Benefits must outweigh the costs in order for
a public good to be created
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Why was the Grand Canyon Skywalk built by a
Native America Tribe and not the government?
Public Versus Private Sector
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Public Sector
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The part of the
economy that involves
the transactions of the
government
Public Goods are
financed by the
Public Sector
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Private Sector
Part of the economy
that involves
transactions of
individuals and
businesses
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Free Rider
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Someone who wants to get the benefits of public goods
without paying for a good or service
EXAMPLE
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Firemen protect your home whether you would pay for it or
not.
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Free Riders!!
Everyone wants it but a few people
Result: Other peoples homes are protected from your fire next door
because everyone benefits from public goods
Military
Those who didn’t want it will use it and therefore
become “Free riders”
Market Failures
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A situation in which the market does not
distribute resources efficiently
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You cant just build roads where there are the
most people because it neglects areas in need
of transportation
EXTERNALITIES
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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
Can be both positive and negative
DAM EXTERNALITIES
Intended Purpose: Power
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What are to positive
effects?
Boating
Fishing
Lakefront views
Swimming
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What are the negative
effects?
Loss of habitat
Overcrowding
Noise
Fish migration
disruption
How the Government deals with
Externalities
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Encourage positive externalities
Limit negative externalities via regulations
and things like “pollution permits”
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What do you think a pollution permit is?
Chapter 3 Section 4
Providing a Safety Net
Read aloud intro to Section 4 (67)
The Poverty Problem
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Free markets
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result in uneven distribution of resources
Poverty Threshold
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income level below what is needed to support
a family or household
The GOVERNMENTS Role
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Provide a safety net
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Welfare – the US safety net of government aid
for the poor
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Created following the Great Depression
Positive: A safety net for the poor
Negative: Some feel people become
dependent upon welfare and are unable or
unwilling to get off of assistance.
Government Redistribution Programs
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CASH TRANSFERS
Direct payments of money to people
eligible poor people
1. Temporary Assistance For Needy
Families
2. Social Security
3. Unemployment Insurance
4. Workers Compensation
Government Redistribution Programs
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IN-KIND BENEFITS
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Goods and services provided for free or at
greatly reduced prices
Food giveaways, food stamps, subsidized
housing, legal aid
MEDICAL BENEFITS
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Medicare – people over 65
Medicaid – poor who are unemployed or not
employer’s insurance
Government Redistribution Programs
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EDUCATION
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Government funding for basic and advanced
education
FAITH BASED INITIATIVES
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Religious organizations can qualify for federal
funding as of 2003 to help the poor