Chapter 2.3 Capitalism and Economic Freedom Objective: To explore the characteristics of a free enterprise system Describe the role of the entrepreneur, the consumer and government in a free enterprise economy

Introduction A market economy is normally based on system of capitalism, where private citizens, many of whom are entrepreneurs, own the factors of production Free enterprise is another term used to describe the American economy In a free enterprise economy, competition is allowed to flourish with a minimum of government interference

Competition and Free Enterprise With economic freedom, people and businesses make their own economic choices The result of voluntary exchange, in which buyers and sellers are free to decide whether or not to complete a transaction, results in both buyers and sellers believing that the good or service obtained is of more value than the money or product given up

Competition & Free Enterprise The profit motive encourages entrepreneurship and is largely responsible for the growth of a free enterprise economy Competition among sellers helps lower prices

Thinking Critically Q: Understanding Cause and Effect How has the development of transportation and communication systems affected the type of economy that exists in the U.S.? A: Freedom of movement of people and ideas has allowed the U..S. to develop a strong Market economy

Thinking Critically Q: Making Inferences what incentive does owning private property give people? A: Private property gives people the incentive to work harder, to save, to invest and to succeed

Competition and Free Enterprise

The role of the Entrepreneur Entrepreneurs use land, capital and labor to make a profit When an entrepreneur is successful, everybody benefits. Successful entrepreneurs attract other firms to the industry The entrepreneur’s search for profits leads to new products, greater competition, more production, higher quality and lower prices for consumers

The Role of the Consumer The consumer has much power in a free market economy. Consumer sovereignty describes the role of the consumer as ruler of the market Consumers in the American economy express their wants in the form of purchases in the market place. The dollars they spend are the “votes” used to select the most popular products

Discussion Questions Q: How are entrepreneurs and consumers dependent on each other? A: Entrepreneurs make goods available to consumers, while consumers guide entrepreneurs regarding what will and will not successfully sell

The Role of Government As a protector, a government may pass and enforce laws meant to prevent the abuse of consumers and workers Governments are both providers and consumers. The U.S. government provides education and welfare and is the second largest consuming group in the economy after consumers

Role of Government As a regulator, the government works to preserve competition The promoting of national goals is an important role of any government. In the U.S., achieving economic equity and security has resulted in a mixed economy, or modified private enterprise economy

Market Systems Private Ownership 2. Interaction of market forces (supply and demand) determines what will be made, how and for whom. What gets produced is “voted” on by people’s money (prices) Founder: Adam Smith Examples: U.S., England, etc. Unless Mixed distinction Vocab: Laissez Faire: “let it be” = keep gov’t out of it, A.K.A Pure Capitalism

Mixed Systems USA: Mostly Market Economy, but with some Gov’t interference 1. US GOV: produces some goods/services National Defense Interstate Highway system

Mixed Systems 1. US GOV: produces some goods/services Public Works Hoover Dam Public Works Golden Gate Bridge Erie Canal

Mixed Systems USA: Mostly Market Economy, but with some Gov’t interference 2. Influences What/How/For Whom only when national need or for minimum standards