American Free Enterprise Chapter 3

Section 1: Advantages of Free Enterprise Free enterprise system – anyone is free to start a business or enterprise What role does the government play in encouraging free enterprise? Review chart on page 71, what does it tell you about starting a business in America?

Free Enterprise and Legal Rights Open Opportunity – everyone has the ability to enter and compete into marketplace Legal Opportunity – everyone should have same economic rights under the law (no one has a better chance to succeed) Free Contract – everyone has the right to decide which legal economic agreements they enter into

Competition over Books From small book stores to large retailers to Amazon. Is competition always a good thing? What happens when small book sellers go out of business? Is there still “competition” in the market? Why are large businesses able to give better prices? Is that always a good thing? What about WalMart and Home Depot? Good or bad?

Milton Friedman Economist who advocated free enterprise and less government involvement in all areas Author of Free to Choose Served as an advisor to 2 presidents

Section 2: How Does Free Enterprise Allocate Resources? Profit – money left over after costs of producing goods are subtracted from revenue gained by sales Producers – seek profit Consumers – “vote” with their wallet Chart on page 79 – what does this chart tell you about the “votes” of consumers about food?

Mixed free enterprise system – some government protections, provisions and regulations US government involved by taxing, spending in certain areas and regulating other areas How has government’s role in the economy changed over the years? Pg 81 chart

Government involvement in the economy: Nearly 22 million workers and 2 trillion in spending…. Why do most government workers work on the “local” level? Why is most government spending done at the “federal” level?

Section 3: Government and Free Enterprise Market failure – if people who are not part of the marketplace interaction benefit from or pay costs Public goods – goods and services provided by the government and consumed by the public Can you name “public goods”??? People cannot be denied use of goods Use of them by one person does not reduce its usefulness to others

Activity Create a list of public goods. In your group, identify a way in which you could “privatize” this or take it out of government control. What would be the benefits of privatizing this? What would be the problems? Overall, do you think this would be effective?

Free rider – someone who chooses not to pay for a good or service, but still benefits For example: fireworks displays Private companies do not want to fund this because they won’t profit. Government can provide with tax dollars Private organizations can raise funds to pay for it Infrastructure – goods and services necessary for smooth functioning of society (highways, bridges, sewer, healthcare)

Externalities Side effect of a transaction that affects someone other than producer or buyer Negative externality – negative effect for people not involved in activity (pollution, traffic, etc) Positive externality – benefit for people not involved in activity (lower taxes, etc)

Subsidy – government payment that helps cover the cost of an economic activity that is considered to be in the public interest (public television, farming, vaccines) Safety Net – government programs designed to protect people from economic hardships (welfare, Medicaid) Transfer payments – getting money from another party without having to provide a good or service (birthday) Public transfer payment – government using tax money to give to other people (social security)

Homework Interview someone who owns business and ask them the following questions: What made you decide to start your own business? Why did you choose THIS business? When did you start? What steps did you have to take