American Free Enterprise Chapter 3

Section 1 The Benefits of the Free Enterprise System

The Tradition of Free Enterprise America, the land of opportunity, offers special opportunities that have allowed many to be successful business people. The key factor has been the social and political commitment to giving people the freedom and flexibility to try out their business ideas and compete in the marketplace.

Constitutional Guarantees and Limitations Property Rights The 5th Amendment states that private property may not be taken for public use without just compensation THIS IS KNOWN AS EMINENT DOMAIN! (EXAMPLE: INTERSTATES) The 14th Amendment extends this limitation to state governments as well

Taxation Congress’s powers to tax is limited. The Constitution required that taxes be the same for everyone. The 16th Amendment allowed Congress to tax based on income.

Contracts Individuals and businesses are guaranteed the right to enter into contracts The Constitution prohibits anyone from using the political process to get excused from their contracts.

The Basic Principles of Free Enterprise Seven key characteristics make up the basic principles of free enterprise.

1. Profit Motive The drive for the improvement of material well-being 1. Profit Motive The drive for the improvement of material well-being. (GETTING PAID TO WORK TO EARN MONEY FOR COLLEGE- MAKING A PROFIT)

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. Our role as a consumer is how all citizens participate in the economy in the U.S.

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 Interest Both state and federal governments are actively involved in concerns of the public as a whole, such as environmental protection, sanitary food production and workers’ health and safety.

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.

PATENT A patent is a government license that gives the inventor of a new product the exclusive right to produce and sell it. (20 yrs.) A government issued patent helps stimulate economic growth by providing incentives for innovation.

Public Good A public good is a shared good or service for which it would be inefficient or impractical (1) to make consumers pay individually and (2) to exclude those who did not pay. Examples: roads & bridges

Redistribution Programs Cash transfers: direct payment of money to poor, disabled or retired people. Examples: Social Security, unemployment, worker compensation. In Kind Benefits: goods and services provided for free or at a reduced price. Examples: food stamps, subsidized housing, legal aid.