The Governments role in the Free Enterprise System
Initially, the US began with a policy toward business. This means: LAISSEZ FAIRE LEAVE THINGS ALONE, HANDS OFF
This concept is often paired with, an economic system based on CAPITALISM PRIVATE OWNERSHIP OF THE FACTORS OF PRODUCTION.
Why in theory is this supposed to work? IT SHOULD WORK BECAUSE PRODUCERS WILL CREATE THE GOODS AND SERVICES THAT CONSUMERS DEMAND.
When did this change? DURING INDUSTRIALIZATION
Why? BECAUSE ROBBER BARONS WERE CREATING MONOPOLIES AND BAD LABOR CONDITIONS
What is different about this diagram compared to the one we drew on p. 8? THE GOVERNMENT IS REPRESENTED ON THIS CIRCULAR FLOW CHART
How does this new element interact with the circular flow model? THE GOVERNMENT INTERACTS WITH BOTH THE FACTOR AND PRODUCT MARKET AS WELL AS HOUSEHOLDS AND BUSINESSES
PUBLIC SECTOR GOODS & SERVICES: TOLLS, PARKS, SCHOOLS, USPS
SOLE PROPRIETORSHIPS AND PARTNERSHIPS
WHY DO YOU THINK MARY KAY ASH PROVED SO SUCCESSFUL IN HER COSMETICS VENTURE? BECAUSE – Entrepreneurial skills – Innovation in sales techniques and incentives
Sole Proprietorships Advantages Easy to open and close Few regulations Freedom and control Owner keeps Profit Disadvantages Limited funds Limited life Unlimited liability
Why are sole proprietorships the most common form of business organization in the US? Easy to start up Full control Relative freedom from regulation Ability to leave the business at any time All profits to the sole proprietor
Partnerships Advantages Easy to open and close Few regulations Access to resources Joint Decision Making Specialization Disadvantages Potential for conflict Limited life Unlimited liability
What do stocks and dividends have to do with corporations? Stocks are sold to people (shareholders) and those shareholders receive a dividend or check at the end of the year containing a percentage of the corporations profits.
Corporations Advantages Access to Resources Professional Managers Limited Liability Unlimited Life Disadvantages Start-Up Cost and Effort Heavy Regulation Double Taxation Loss of Control