Chapter 3 : Lesson 1 The American Free Enterprise System

Essential Question: What are the benefits of a free enterprise economy?

Free Enterprise: an economic system in which privately owned businesses have the freedom to operate for a profit with limited government intervention

In a free enterprise economy, competition is allowed to flourish with a minimum of government interference.

Capitalism thrives on competition, the struggle among sellers to attract consumers while lowering costs. Buyers also compete to find the best products at the lowest prices.

Five Characteristics of Free Enterprise

Economic Freedom People have the freedom to choose their occupation and their employer. People can choose to have their own business or to work for someone else. Businesses are free to hire the best workers, and they have the freedom to produce the goods and services they feel will be the most profitable.

2. Voluntary Exchange The act of buyers and sellers freely and willingly engaging in market transactions. Both the buyer and seller are better after the transaction than before.

3. Private Property People have the right and privilege to control their possessions as they wish. They have the right to use or abuse their property as long as they do not interfere with the rights of others. This gives people the incentive to work, save, and invest.

4. Profit Motive The driving force that encourages people and businesses to improve their material well-being. People are free to risk their wealth in a business venture. If things go poorly, they lose part or all of the investment. If things go well, they will earn rewards.

5. Competition Capitalism thrives on competition. Competition is the struggle that goes on between buyers and sellers to get the best products at the lowest prices. Competition between sellers keeps the costs of production low and the quality of goods high. Buyers compete among themselves to find the best products at the lowest prices petition

Benefits of the Free Enterprise System Individual freedom of consumers and producers Variety of goods Adapting to change Promoting Progress Creation of wealth

Disadvantages of Free Enterprise Capitalism Uneven economic growth-sometimes the growth is fast and at other times it takes a step back Growing gaps between rich and poor- the rich seem to get richer and the poor seem to stay poor Large “supply-side” tendencies-works best when there area large number of players-buyers and sellers Rights and responsibilities of business-protects consumers against harm from products

Review Question: Chapter 3 : Lesson 1 Read pages 72-80 and answer Review Questions on page 80. Hand in Google Class Room.