Lecture #9: Free Enterprise Part 2

Ethics & Free Enterprise Consists of the principles of conduct such as: right & wrong morality & immorality good & bad Remember when taking Cornell Notes you need to come up with at least 3 questions per page!

Ethics & Free Enterprise cont. Why Free Enterprise is Ethical! Allows individuals to choose their occupations or professions Produces goods & services preferred by both the majority and the minority Rewards producers for responding to the buying public Punishes sellers who don’t respond to public preferences (go out of business) Supports the right of the individual to be free, including the freedom to acquire property, work where they chose, and start own business

Economics in Key Documents Key US Documents Declaration of Independence desire to practice free trade/free enterprise one of the complaints to King George III Constitution—Article 1, Section 8 Preserves competition—states can not tax each other’s goods Bill of Rights—protects private property. If the government wants your land it has to pay for it.

Rights & Responsibilities 3 Sets Open Disclosure—the right to sell an item comes with the responsibility to disclose facts about the item EX: Selling a house or car—must disclose if they have any problems or else you can get sued! Obeying the law—one has the right to use private property the way they wish, w/in the limits of the law EX: You can’t use your private property to open a meth lab! Being truthful—must be truthful in trade & commerce EX: You can’t tell someone your product will make them skinny if it doesn’t!

Entrepreneurs Entrepreneurs Is a person who has special talent for searching out & taking advantage of new business opportunities take risks to develop new products or new ways of doing things tiny minority of population people will not risk their time & money to develop a new product unless they can potentially earn a profit

Entrepreneurs (cont) Answer the following in your notebook: What new product can you think of developing? How about a new way of doing something?

The Role of Government in a Free Enterprise Economy Gov’t as Enforcer of Contracts Contract—an agreement between 2 or more people to do something Gov’t needs to enforce contracts

Government as a provider of Nonexcludable Public Goods private good—a good of which one person’s consumption takes away from another person’s consumption. Ex: Food & Gas public good— a good of which one person’s consumption does not take away from another person’s consumption. Ex: Movie in a movie theater

Government as a provider of Public Goods Goods—excludable or nonexcludable excludable public good—a public good that individuals can be excluded (physically prohibited) from consuming. Ex: a college lecture—only available to students enrolled at the college nonexcludable public good— a public good that individuals can not be excluded (physically prohibited) from consuming. Ex: National Defense, dam, etc. People must pay taxes to get these goods People can vote to influence what the gov’t does

Positive & Negative Externalities negative externality—an adverse side effect of an act that is felt by others. Ex: Speeding on the freeway Some say the role of gov’t is to reduce negative externalities Can be done through court system, regulation, & taxation positive externality—a beneficial side effect of an action that is felt by others. Ex: Education—help you earn a living, become a better citizen & a more informed voter

Review—True or False In an ethical system, people are free to choose whatever job they wish. TRUE An ethical system does not punish the producers. FALSE An ethical system gives producers the freedom to fail. Rights rarely come without responsibility.

Review—True or False An entrepreneur develops new products. No entrepreneur can make us better off. FALSE Less profit for entrepreneurs means more money in our pockets. Entrepreneurs develop new ways of doing things.

Review—True or False A contract is a good shared by 2 or more people. A private good is a good of which one person’s consumption takes away from another person’s consumption. TRUE National defense is an excludable public good. Regulation & taxation are always positive externalities.

Summary When completing your notes you need to write a 3-5 sentence summary of the lecture. This is a part of your notes grade!