Capitalism and Free Enterprise the economy of the United States is built largely on free markets and private ownership Capitalism is an economic system in which private citizens own and use the factors of production in order to seek a profit Free Enterprise is where competition is allowed to flourish with a minimum amount of government interference

Markets One important part of our economic system Places where the prices of goods and services are determined when the exchange takes place Markets are also the mechanisms that connect different sectors of the economy The main places where buyers and sellers meet to negotiate product prices The consumer determines what products will be produced

Economic Freedom Choice is a key element of the Free Enterprise system Each person chooses the job that they want to have and when and where we want to work As consumers, we choose which products to buy Businesses choose which products they will sell Individuals must normally accept the consequences of their decision in the Free Enterprise System If an entrepreneur starts a business that fails, the government typically does not bail them out

Private Property Rights We have the freedom to own and use, or dispose of, of our property as we choose as long as it does not interfere with the rights of others Gives people the incentive to work, save, invest, because we keep any gains that are earned People tend to take better care of things that they own so they tend to last longer

Competition Capitalism thrives on the struggle between buyers and sellers to get the best products at the lowest price Competition between sellers keeps the cost of production low and the quality of goods higher Buyers compete to find the best product at the lowest price Competition rewards the most efficient producers and forces the least efficient producer out of business Makes for efficient production, higher-quality products, and satisfies consumers

The Profit Motive People are free to risk their money into business ventures If the venture goes well, the person will earn rewards for their efforts… if the venture fails, the person could loose all or part of their investment The possibility of financial gain lures many to take risks in order to earn profit Profit is where people who invest are better off at the end of the period than they were at the beginning Largely responsible for the Free Enterprise System

Voluntary Exchange The act of buyers and sellers freely and willingly engaging in market transactions As long as a transaction in the market place is voluntary both the consumer and seller benefit Buyer gives up money to seller to obtain item and seller gives up item to obtain money

The Spread of Capitalism Developed gradually from the changes in medieval and early modern Europe over hundreds of years 2 concepts laid the foundation 1. the idea that people could work for economic gain 2. the idea that government should have a very limited role in the economy Major changes in economic development of Europe happened in 1200 with the opening of trade with the East

As trade increased, people began to invest to make profits, thus spreading populations By 1700s, Europe had nation-states, wealthy middle class families with money and markets, and a new attitude towards work and wealth Carried to the United States

Adam Smith and Capitalism Scottish economist and philosopher Published The Wealth of Nations in 1776 -offered a detailed description of English society in life and trade -scientifically described the basic principles of economics for the first time -was read by many of America’s founders, such as Madison, Hamilton, and Jefferson Believed that individuals seeking a profit, benefited society as a whole

Established the laissez-faire concept of economics governments role is strictly limited to those actions needed to ensure free competition in the marketplace