US Capitalism Macdonald Economics

U.S. Economy - Market economy is based on system of capitalism which means private citizens own factors of production and operate to make a profit. Also known as free enterprise Competition is allowed to flourish w/ minimal gov’t interference

Characteristics of Free Enterprise Free enterprise is based on five characteristics: 1. Economic freedom 2. Voluntary exchange 3. Private property rights 4. Profit motive 5. Competition

Economic Freedom Ppl & businesses have economic freedom Ppl choose occupations, employers, where want to work, when to quit Businesses choose who to hire, what to produce, how to charge prices

Voluntary Exchange Buyers & sellers freely engage in buying & selling Both are better off after the exchange Buyers can do many things w/ $ (save, hide it, exchange) – must believe that spending it will be better than alternative Sellers must feel that $ they receive is more valuable than goods they are selling

Private Property Rights Ppl own & control own possessions Includes both things that are tangible (cards, houses, food) & things that are intangible (skills & talents) Can use possessions however they want as long as doesn’t interfere with others Gives ppl incentive to work, save, invest

Profit Motive Ppl free to risk wealth in businesses If businesses goes well, earn rewards If not, lose wealth Possibility of financial gain motivates economy

Competition Struggle among sellers to attract buyers while lowering costs Possible b/c private ppl own factors of production & have economic freedom Buyers compete to buy best products at lowest prices Result is goods & services are produced at lowest cost

US Economy US economy is based on three groups with specific roles, goals and motives: Entrepreneurs Consumers Government

Role of Entrepreneur Organizes and manages factors of production Start up new businesses Make decisions regarding businesses Most fail, but dream of success often causes many pp to start businesses

Role of Consumer Have power in econmy b/c determine what products are produced If a company tries to sell an item, but no one buys, company will try something else (celery Jell-O, chewable toothpaste, bacon in toaster) Consumer sovereignty describes consumers as sovereigns or rulers of the market

Role of Government Regulator – preserves competition by making sure no one has unfair advantage, no “price fixing”, etc. Promoter of Goals – tries to balance economic freedom w/ other goals such as full employment, etc. (Social Security) Protector – against false advertising, unsafe food/ drugs, etc. Provider & Consumer – provides education, defense, parks