American Free Enterprise How much Government? Too Much? Not Enough?

Citizen advocates for policy change Concerns of the public as a whole Laws and standards in response to interests of the public

Features  Economic Freedom  Competition  Private Property  Contracts  Self-Interest  Voluntary Exchange  Profit Motive

Features  Economic Freedom  Competition  Private Property  Contracts  Self-Interest  Voluntary Exchange  Profit Motive American Liberty Choice

Features  Economic Freedom  Competition  Private Property  Contracts  Self-Interest  Voluntary Exchange  Profit Motive Regulates the marketplace: more choices = better quality for lower price

Features  Economic Freedom  Competition  Private Property  Contracts  Self-Interest  Voluntary Exchange  Profit Motive Rules for doing business. Makes it fair. Preserves resources.

Features  Economic Freedom  Competition  Private Property  Contracts  Self-Interest  Voluntary Exchange  Profit Motive Motivates trade. Promotes Efficiency. Reduces waste.

Private Sector  Involves transactions of individuals and business –Sports –Telecommunications –Shopping mall –Groceries –Automobiles –Housing

Public Sector  Involves transactions of the government –Parks and recreation –Military –Education –Food policy –Energy sector –Mortgage industry

Government Protections  Health and Safety  Environment  Consumers  Poor –Redistribution –Reeducation –Medical –TANF Fish Game “Tragedy of the Commons” Opportunity Cost of Trade

Free Rider  Someone who would not pay for a g/s unless it is publicly provided LibraryParkSchool When have you been a free rider?

Externality  Economic side effect of doing business  Effects other than what was intended –Examples  Positive  Negative Market Failures

Technology Factor  Increase Efficiencies  Innovation –Encouraged by Government with  Funding  Education  Research  Licensing  Patents  Copyrights

R & D Graveyard  Difficult to get funding Government Funding Business Funding Loss of Funding Innovation Theory Conceptual Commercial Production Engineered Many Projects Die

Expanded Circular Flow Model Government Households Firms Imports Exports Product Market Factor Market Financial Institutions Finance Services Investment

Phases of the Business Cycle Expansion Peak Contraction Trough GDP/GNP numbers are on the rise Highest point of economic expansion Lowest point of economic contraction GDP/GNP numbers are on the decline

Degree of Contractions  Recession –Prolonged economic contraction  2 consecutive quarters of negative growth  Depression –Recession that is especially long and severe

Recent US cycles years of correction 5-8 years of growth

Efficiency  Capital Deepening –Process of raising capital per worker –Stock investment makes money available for companies to spend  Technological Progress –Growth – (capital + labor)  Depreciation –Loss in value of capital goods