Ch. 3 lesson 1: the American free enterprise system

Characteristics of Free enterprise capitalism 1. Economic Freedom: you have the freedom to choose your occupation, your employer, and your job location. You can leave your current job and move on to another job. In turn businesses are free to hire workers of their choice, produce what they would like to produce. 2. Voluntary Exchange: VOLUNTARY act of buyers and sellers FREELY and WILLINGLY engaging in market transactions. This benefits both the buyer and the seller. Characteristics of Free enterprise capitalism

3. Private Property: allows people to own and control their possessions as they wish. Private property gives people INCENTIVE to WORK, SAVE, and INVEST. 4. Profit Motive: under free enterprise capitalism, citizens are free to RISK any part of their wealth in a business venture. If it goes well, they earn a reward…if it goes poorly, they lose. Profit motive is the INCENTIVE to improve one’s material well- being. Characteristics cont.

Characteristics cont. 5. Competition: capitalism thrives on competition. Competition benefits the consumer by assuring UNPOPULAR products will not be produced if consumers do not buy them. So newer, better, less expensive products.

Benefits of free capitalism 1. Individual Freedom 2. A Variety of Goods 3. Adapting to Change 4. Promoting Progress 5. Creation of Wealth Benefits of free capitalism

Disadvantages of free enterprise capitalism 1. Uneven Economic Growth 2. Growing Gaps Between Rich and Poor 3. Large “supply-side” Tendencies: suppliers tend to combine with other suppliers in order to avoid competition. EXAMPLE: Carnival Corp. is company that owns Carnival Cruise Lines, Holland America, Princess Cruises, Seabourn in North America, etc. How competitive are these companies if they are owned by the SAME COMPANY? 4. Rights and Responsibilities of Business: protects consumers against harm from products, discriminatory hiring practices.

Lesson 2: Roles and responsibilities in a free enterprise economy

Take a look at this photo…. What kinds of products do you think these businesses sell? Who do you think owns the businesses?

Suppose that one of the buildings along this street includes an appliance store. How do you think the economy would be affected if another appliance store opened across the street?

The role of the entrepreneur Those who start businesses are important bc they are willing to take risks and therefore become a catalyst for our economy, we ALL BENEFIT!! MOST entrepreneurs fail, but some survive and few become wealthy. Successful entrepreneurs attract other firms to the industry leading to new products, greater competition, more production, higher quality, lower prices.

The role of the consumer Consumers ultimately determine WHAT to produce. CONSUMER SOVERIEGNTY: “the customer is always right.” Consumers also play a role in what is NOT produced.

Role of the government PROTECTOR!! Our government is involved in our economy, bc overall, citizens want it that way. False advertising, unsafe food and drugs, environmental hazards, unsafe products. PROVIDER!!! Gov. provides education, highways, public welfare. REGULATOR!!! Gov. protects competition in the marketplace. CONSUMER!!! Government spends more than all private businesses combined.

Mixed or modified free enterprise The question of how much government involvement is one of the great questions of our times.

Lesson 3: Evaluating Economic performance

Economic and social goals Economic freedom is a cornerstone of American society. Efficiency is a goal bc resources can be scarce. Americans believe in econ. equity: justice, impartiality, fairness. Ex: “Lemon Laws” Ex. Econ. Security: unemployment compensation, Social Security, & Medicare. Price security gives Americans a certain security. Econ. Growth is ALWAYS a major goal.

Resolving trade-offs among goals Two issues with goals is that they sometimes conflict and achieving them has opportunity costs. If the trade-offs are political issues, then the people can resolve by voting. The economic system in the U.S. is flexible and allows choices, accommodate compromises, and satisfy the majority of its citizens.