Chapter 3: The American Free Enterprise Systems Section 1: Advantages of the Free Enterprise System pg. 70-77

What is a Free Enterprise System? The U.S. has a capitalist economic system. Capitalism is an economic system based on the private ownership of the factors of production. Producers are free to produce what consumers want. And they desire to earn profits. Consumers try to satisfy their economic wants. Capitalism is also known as a free enterprise system b/c anyone is free to start a business or enterprise.

An Example of the Free Enterprise System Monica Ramirez noticed that Hispanic women were not buying the cosmetics in stores. T/f she started her own line of cosmetics just for Latinas in 2001 and soon she had other people willing to invest in her business. By 2004, Zalia Cosmetics had sales outlets in 6 major markets and is a great success. Her company was just one of the 585,000 that started in 2001, in the U.S.

Free Enterprise=Market Economy Zalia Cosmetics and other examples illustrate how individual choices are the basis of a market economy. Business owners freely make the choice to start enterprises and they are free to choose how they will use their scarce productive resources. The workers who operate these businesses voluntarily decide to exchange their labor for the pay the owners offer. Consumers make their own choices on which goods and services they will buy.

Government & Free Enterprise Government is suppose to play a relatively limited role in the American free enterprise system. The government sometimes takes actions that limit free enterprise. For the most part, h/w, these actions are designed to protect or encourage competition or to enforce contracts.

Emerging Markets: Example 1 As we saw in Chapter 2, most countries today have mixed economies with some elements of free enterprise. For example, in Mexico the government plays a much larger role than in the U.S. The Mexican Government has made many rules that makes opening your own business very difficult.

Emerging Markets: Example 2 Another example of an emerging market is the country of Singapore. The government is closely involved in the economy. The government establishes what benefits employers must provide to workers. It also requires all workers to put a percentage of income in the Central Provident Fund, a government savings scheme. The fund is used to pay for pensions, public projects, and education. But the government is supportive of free enterprise, it keeps business rents, taxes, and other costs low so their companies remain competitive in the world economy.

How a Free Enterprise System Works-1 Private property is one of the most fundamental freedoms in a capitalist economy. With private property comes the right to exchange the property voluntarily. Another key freedom of this type of economy is open opportunity, the ability of every one to enter and compete in the marketplace of his or her own free choice.

How a Free Enterprise System Works-2 Free enterprise also requires legal equality, a situation which everyone has the same economic rights under the law. You also need the element of free contract, where people decide for themselves which legal agreements they want to enter into, such as business, job, or purchase commitments.

How a Free Enterprise System Works-3 What motivates people to start a business? For most people, it is profit motive, the incentive that encourages people and organizations to improve their material well-being by seeking to gain from economic activities. Producers want the highest profit and consumers want competition to drive down cost.

Example of Free Enterprise In a market economy people can sale anything, as long as people will buy it. An example of this happened in 1975 when Gary Dahl decided to sell pet rocks. This became a fad and this made Dahl a millionaire, but by 1976 most people stop buying the pet rock.

Another Example Competition over selling books has been great over the last 25 years. Starting in 1991 large chain book stores began to open. Buy 2005, about 1,200 independent booksellers had gone out of business. Now with Amazon and the internet the chain book stores are now going out of business. Businesses that keep pace with changes in the market will thrive.

Milton Friedman He received the Nobel Prize for Economics in 1976. Friedman ideas was the belief that the market should be free to operate in all fields, even such professions as the law and medicine. This would lower the cost of these services.