OBJECTIVE DO-FIRST You will be able to explain the key principles of the free enterprise (capitalist) economic system. Every nation’s economy is made up of producers and consumers. Producers MAKE the goods. Consumer BUY the goods. Give one example of a producer. Give one example of a consumer. Are you a producer or a consumer? Explain in 2 sentences.

Scarcity: a limited supply or amount of a resource. No one has access to unlimited resources—our economic system must figure out how to best use our scarce amount of resources. DEFINITION: write this term below your objective for today— Scarcity: a limited supply or amount of a resource.

A.K.A. the free enterprise system Capitalism A.K.A. the free enterprise system

Three Basic Questions Every economic system must answer three basic questions: What goods should be produced? How should those goods be produced? Who gets the goods that are produced? How does our American society answer this question? The Free Enterprise System (Capitalism)

Economic Systems – 4 Types Socialist - Syria Communist – China Free Enterprise – United States Traditional – Java, Indonesia

The Free Enterprise Economy In a free enterprise (capitalist) economy, individual producers get to decide WHAT to make and HOW to make it.

The Free Enterprise Economy In a free enterprise (capitalist) economy, individual producers get to decide WHAT to make and HOW to make it. Consumers who have the money and resources are the ones who get to buy the goods that are produced.

The Free Enterprise Economy In a free enterprise (capitalist) economy, individual producers get to decide WHAT to make and HOW to make it. Consumers who have the money and resources are the ones who get to buy the goods that are produced. In a free enterprise economy, we all compete against each other to make more money and have more resources.

STOP and THINK In a free enterprise or capitalist economy, what are the ADVANTAGES? What are the DISADVANTAGES?

What did this look like in history? In America, the Industrial Revolution led to the start of the free enterprise (capitalist) economic system.

What did this look like in history? In America, the Industrial Revolution led to the start of the free enterprise (capitalist) economic system. Wealthy Americans who had the money and land (the capital) to build a factory became the business owners.

What did this look like in history? In America, the Industrial Revolution led to the start of the free enterprise (capitalist) economic system. Wealthy Americans who had the money and land (the capital) to build a factory became the business owners. Americans who wanted to move to the cities and find work would take a job in these factories.

The Profit Motive In a free enterprise (capitalist) system, all of us are competing against each other to make more money and have more resources. This is called the “profit motive”—we are motivated by the idea of making money!

Disadvantages of Capitalism During the Industrial Revolution, this led to some disadvantages: Factory owners would pay their workers the lowest wage possible, use child labor, and abuse their workers. The more products the workers made, the more money the factory owner would make.

Disadvantages of Capitalism During the Industrial Revolution, this led to some disadvantages: Factory owners would pay their workers the lowest wage possible, use child labor, and abuse their workers. The more products the workers made, the more money the factory owner would make. Factory owners would not spend money on keeping their factories safe for their workers.

Disadvantages of Capitalism During the Industrial Revolution, this led to some disadvantages: Factory owners would pay their workers the lowest wage possible, use child labor, and abuse their workers. The more products the workers made, the more money the factory owner would make. Factory owners would not spend money on keeping their factories safe for their workers. Factory owners did not care that their factories polluted the environment.

Disadvantages of Capitalism The Free Enterprise system also has social inequality.

Disadvantages of Capitalism The Free Enterprise system also has social inequality. Factory owners became wealthier while many of their workers remained in poverty.

Disadvantages of Capitalism The Free Enterprise system also has social inequality. Factory owners became wealthier while many of their workers remained in poverty. American society became divided into upper class (the wealthy) and lower class (the poor)

Advantages of Capitalism: Economic BOOM! With the free enterprise system, America created the largest, wealthiest, and most innovative economy of all time!

Advantages of Capitalism: Economic BOOM! With the free enterprise system, America created the largest, wealthiest, and most innovative economy of all time! Producers used the resources they had to create as many goods as possible. They decided what to make, how to make it, and at what price to sell it.

Advantages of Capitalism: Economic BOOM! With the free enterprise system, America created the largest, wealthiest, and most innovative economy of all time! Producers used the resources they had to create as many goods as possible. They decided what to make, how to make it, and at what price to sell it. Consumers were able to buy many new innovations that made their lives better and easier.

Advantages of Capitalism: INCENTIVES! In a free enterprise system, people respond to the incentives (rewards) to make money! The harder you work, the more money you make. The less you work, the less money you make.

Advantages of Capitalism: COMPETITION! In a free enterprise (capitalist) system, producers compete with each other to make the best product. When producers compete with each other, the consumers get the best possible products to choose from! VS.

Go back to your t-chart! Add 2 more advantages and disadvantages to the t-chart on the front of your notes page!

So who came up with the idea of the free enterprise system? Adam Smith! He published a book called the Wealth of Nations which stated that the best economic system is a capitalist or free enterprise system.

Adam Smith’s Ideas He argued that when people are able to compete and work in their own self-interest, they help the economy grow. Producers can make what they want, consumers can buy what they want, and scarce resources are distributed in the most efficient way.

Adam Smith’s Ideas He argued that when people are able to compete and work in their own self-interest, they help the economy grow. Producers can make what they want, consumers can buy what they want, and scarce resources are distributed in the most efficient way. He also argued that a nation’s government should NOT limit or interfere with businesses—this is where the term “Free Market” or “Free Enterprise” comes from.

Look back at the disadvantages of the free enterprise system… How could you fix these problems? Who could protect workers who were being abused? Who could prevent the use of child labor? Who could help make sure factory working conditions were safe? Who could help protect the environment?

THE GOVERNMENT! Tomorrow, we will begin looking at the “era of reform”– at time when Americans started to demand that the government help protect the rights of the workers, the poor, the sick, and the environment!