Capitalism & Free enterprise Chapter 2, Section 3

CAPITALISM A MARKET SYSTEM IN WHICH PRIVATE CITIZENS OWN THE FACTORS OF PRODUCTION – RESOURCES ARE NOT OWNED BY GOVT EMPHASIS ON COMPETITION FREE ENTERPRISE IS ANOTHER NAME FOR AMERICA’S ECONOMIC SYSTEM IN THEORY, LITTLE GOVERNMENT INTERVENTION (IN REAL LIFE, NOT TRUE)

4 Characteristics of Capitalism Economic Freedom Voluntary Exchange Private Property Profit Motive

ECONOMIC FREEDOM INDIVIDUAL FREEDOM FREEDOM FOR BUSINESSES MAKE ECONOMIC DECISIONS FOR YOURSELF OCCUPATION CHOOSE YOUR EMPLOYER WORK FOR YOURSELF SPEND MONEY AS YOU WISH

VOLUNTARY EXCHANGE BUYERS AND SELLERS FREELY AND WILLINGLY ENGAGE IN MARKET TRANSACTIONS EVERYONE IS BETTER OFF – MUTUAL BENEFIT YOU AGREE TO SPEND THE MONEY OR SELL THE GOOD/SERVICE

Voluntary Exchange

PRIVATE PROPERTY PEOPLE HAVE THE RIGHT AND PRIVILEGE TO CONTROL THEIR POSSESIONS OWNERSHIP INCENTIVE – TO WORK, SAVE, INVEST, SUCCEED, IF YOU EARN IT, YOU KEEP THE REWARD INTANGIBLE SKILLS, TALENTS – LIKE A DOCTOR TANGIBLE HOUSE, CAR, ARTWORK, CELL PHONE INHERITANCE - to pass on property when you die

PROFIT MOTIVE The drive to improve your material well being Profit is the extent to which you are better off - measured in dollars or other benefits People are free to RISK their wealth in business ventures RISK is assumed by the individual – you succeed or fail on your own If you succeed, you keep the profit If you fail, you may lose your investment

Role Players in Capitalism Entrepreneurs Consumers Government Protector – law enforcement Provider/Producer – provides G/S Consumer – buys G/S Regulator – preserve competition Promotes National Goals

Name that Role Player ___ create jobs and new goods or services. ___ love shopping for new clothes and shoes. ____write laws to protect consumers against defective products. ___ require that automobiles have safety belts and air bags. _______ educates citizens, a service. _____ provides police and fire service. ____ buys office supplies, like a consumer. ____ regulates competition to prevent monopolies. ____ help grow the economy with new ideas.

Entrepreneurs Organize the use of Land, Labor and Capital Start new businesses Many businesses fail Everyone benefits when they succeed – employees, consumers, government (taxes for roads, schools, libraries, police, fire)

ENTREPRENEURS

CONSUMERS Consumer sovereignty – the buyers rule the market by choosing what sells and what fails Consumers vote with their dollars Examples of successful products? Examples of failed products?

CONSUMER SOVEREIGNTY

GOVERNMENT Protector: laws are passed to protect consumers and create rules for contracts, safety, etc. Producer: Defense services, education, parks Consumer: Buys office supplies, food, property Regulator: Preserve competition (no monopolies), monitors banks, automobiles (registration, licenses), use of property Promoter of National Goals: creates programs desired by citizens

MIXED ECONOMY or MODIFIED FREE ENTERPRISE ECONOMY The US is NOT a pure market system We are largely based on Market system The US is subject to a great deal of government intervention in their economic affairs Examples?