The Private Enterprise System Principles of Business Project 2 :: What Would You Do?

Economic Systems Every society develops a system for making decisions about how it will use its resources These economic systems must answer the following questions: What goods and services will be produced? How will these goods and services be produced? How will these goods and services be distributed to the consumer?

Private Enterprise System In this system, the questions are answered by individuals and businesses, not the government Individuals and groups own or control the economic resources – human and natural resources and capital goods – to produce goods and services The characteristics of the private enterprise system has enabled the nation to produce more goods and services than any other single county

Freedom in the Marketplace In economic terms, marketplace refers to any place where buyers and/or selling of goods and services occur Private enterprise is often called a market economy or a market system because markets answer the questions of what, how, and for whom to purchase

Free to Choose Markets in private enterprise are self-regulated and self-controlled They are free to choose: What they wish to produce Which resources to purchase What techniques of production to use How their goods or services will be marketed What price(s) they will charge When to close down or go out of business

Economic Vote Each time a consumer makes a purchase, s/he is casting an economic vote (dollar vote) in the marketplace These economic votes enable consumers to control what will be produced If consumers do not buy a product, the producer must change it, replace it, or go out of business It is the responsibility of the consumer to be well informed and to make educational choices

Private Property Anything of value that people own is considered private property Business property Buildings, land, equipment, etc. Personal property Furniture, jewelry, money, clothing, etc. Ownership includes the results of your work

Private Property Farmers’ ownership of the crops they raise Workers’ ownership of the wages they earn Businesses’ ownership of the goods or services they provide Individuals’ ownership of the profit that comes from the sale of private property

Private Property Individuals and businesses in a private enterprise economy are free to decide how to use their private property and when and how to sell it Enter freely into contracts involving their private property Stop others from using their private property

Private Property Abuse their private property as long as they are not stepping on the rights of others Control their private property in any way they choose Use their private property to make income Keep any income earned by renting, leasing, or selling their private property

Limited Government Control The private enterprise system in the U.S. is not a pure private enterprise system because there is a limited amount of government control Mixed system – individuals and businesses are the primary economic decision makers, while government helps to regulate and control the system

Mixed System Government steps in to protect citizens The role of government has gradually expanded partly because Americans want certain problems, like inflation, pollution, and unemployment, solved

Competition The rivalry between two or more businesses to attract scarce customer dollars Businesses compete by offering better credit options, improving goods and services, creating new goods and services, and providing better service

The Profit Motive Profit is the monetary reward business owners receive in return for taking the risk involved in starting a business The desire to make a profit is called the profit motive (forms the economic basis for the private enterprise system) Many people consider making a profit the greatest motivating factor in the private enterprise system

The Price-directed System A private enterprise system is often called the price-directed system because price determines what consumers buy, which jobs they will take, the success or failure of businesses, and the types of products that will be produced Supply and demand work together to determine prices

Weaknesses While the private enterprise system is the most productive in the world, it does have some negative aspects, or disadvantages Production drops when sales are low; companies may lay off workers or go out of business; results in periods of unemployment

Weaknesses Poverty has not been eliminated Property and income are not distributed equally; some own a lot, others own nothing In a private enterprise system, individuals and groups (rather than the government) own or control the economic resources

Summary Characteristics include: Freedom in the marketplace Private property Limited government control Competition The profit motive Price-directed system Still, unemployment, poverty, and unequal distribution of wealth occur in the private enterprise system

Economic Freedom Freedom to choose Your own personal economic goals The kind of work you do Whether you want to become an entrepreneur, to own a business by yourself Important to private enterprise system; without entrepreneurs, the system would have much less change, fewer new products, and less efficient use of resources

Economic Freedom Freedom to own, use, buy, and sell property Private property is anything of value that you own (business or personal property) Make decisions about how your private property will be used How much of your income you want to save, spend, or invest

Economic Freedom Freedom to compete Free to buys goods and services anywhere Freedom to compete Free to use your abilities to compete for a job, scholarship, etc. Allows you to market your assets to your best advantage

Limits to Economic Freedom Cannot buy anything and everything you might like to Limiting factor is competition among buyers; always people wanting to buy the same things Limited by own choices; if you choose to buy one thing you may not have money to buy another

Limits to Economic Freedom Laws that have been created to protect people; workers in medicine, construction, etc.; laws require specialized training or must pass examinations; cannot sell illegal drugs, stolen property, or services for which s/he is not trained or licensed to perform Taxes collected from the government restricts economic freedom since taxpayers cannot use all of their income for their own purposes Taxes are important, however, because they help pay for highways, public schools, & police