ECONOMICS

The study of how individuals and nations make choices about ways to use scarce resources to fulfill their needs and wants. How people and nations deal with scarcity. What type of economic system do we have in the United States? Traditional? Market? Command? MIXED MARKET ECONOMY = elements of all three types Businesses are free to compete for a profit, but the government does play a role

CAPITALISM AND FREE ENTERPRISE- WHAT ARE THEY? Capitalism- system in which private citizens own most of the means of production and decide how to use them within legal limits Free enterprise- system in which individuals and businesses are allowed to compete for profit with a minimum of government interference Capitalism, free market, and free enterprise are very similar Six features contribute to the success of capitalism and free enterprise in the US: 1) economic freedom- you can do what you want! 2) markets- establish prices and encourage competition 3) voluntary exchanges- buyers and sellers act on their own will 4) the profit motive- desire to earn money by producing goods or services 5) competition- leads to greater efficiency in lower prices and better goods 6) private property rights- you can do what you want with your property ($) so you work hard for it and take care of it

WHERE DID THESE IDEAS COME FROM? Adam Smith, Wealth of Nations (1776) “Father of Economics” Smith argues that the best way for society to advance is for people to work for their own self- interest, or their own well-being. People produce what others want, and you will have a stable economy. Differed from systems of the past. This was REVOLUTIONARY for the time Laissez-faire economics was born- belief that the government should not interfere in the marketplace “In political economy, I think Smith’s Wealth of Nations is the best book.” – Thomas Jefferson Me with Adam Smith in Scotland

IF CAPITALISM AND LAISSEZ-FAIRE ECONOMICS ARE SO GREAT, WHY DO WE NEED GOVERNMENT INTERFERENCE IN THE ECONOMY? As great as it is to let the natural supply and demand of markets function on their own, capitalism has many negative effects 1) It ignores the suffering of workers for the sake of profit 2) Sometimes profit can be made on goods and services that are harmful to society

WHY AND WHEN DID THE GOVERNMENT GET INVOLVED IN THE ECONOMY? During which two eras of American history did the government’s role greatly expand? PROGRESSIVE ERA (1890s-1920s) and the GREAT DEPRESSION (1930s) The government became a referee, ensuring fair competition, promoting public safety, and taking control of the nation’s money supply During the Great Depression, FDR and the federal government took on the roles of promoting employment, maximizing production, and fighting inflation People were okay with this new government activity in the economy because millions of Americans were suffering

SO HOW IS THE GOVERNMENT INVOLVED IN ECONOMICS? The government seeks to promote economic growth, encourage stability, and promote employment. It uses several instruments to do so: The power to provide public goods Redistribution of income Regulation of economic activities Now we’ll look at these…

THE GOVERNMENT PROVIDES PUBLIC GOODS A public good is something that everyone can use, regardless of whether or not they pay for it. What are some examples? Sidewalks, public education, military protection, bridges, police and fire, radio broadcasts Sometimes the government uses its power to provide public goods to increase employment or provide services the economy needs Ex. Healthcare, New Deal ABCs

REDISTRIBUTION OF INCOME The government redistributes income to boost the ability of more Americans to put more money into the economy GRADUATED INCOME TAX! The government collects more money from wealthier Americans and uses some to fund programs to help the less fortunate to soften inequalities created by capitalism

REGULATES ECONOMIC ACTIVITIES The government prohibits monopolies to ensure that the market is fair and competitive The government acts as a watchdog over banks and the stock market The government protects workers, consumers, and the environment by establishing safety standards and ensuring equal opportunity