Chapter 3:The American Free Enterprise System Advantages of the Free Enterprise System

Capitalism/Free Enterprise System/Market Economy Capitalism, free enterprise system, and market economy essentially mean the same thing. Another name for capitalism is free enterprise system. Why is capitalism called the free enterprise system ?

U.S. is a capitalist economic system This is all based on private ownership of the four factors of production Consumers are free to choose what they buy, producers are free to make what they like, and make as much profit as possible.

Emerging Markets Most counties have some sort of mixed economic system (a balance between tradition, free enterprise, and government involvement. In the Mexican and Singaporean economy the government plays a much larger role than in the U.S. Mexican government has established many rules and regulations to starting any business. Competition: Popular stall on the streets of Guadalajara, Mexico, selling everything from candy to clothes provide considerable competition for established stores.

How a Free Enterprise System Works In Chapter 2 you learned that the right to private property is one of the most fundamental freedoms in a capitalist economy. What steps can a government take to support free enterprise? protecting/encouraging competition enforcing contracts keeping business costs low

Free Enterprise is just another name for capitalism You are free to start a business that provides usefulness to consumers Business is free to use scarce resources as they please Managers and workers operate these businesses in exchange for pay

Consumers decide what they want to buy They look for goods and services to fulfill wants for the best possible value

Necessary Conditions for Capitalism Open Opportunity - is the ability of everyone to take part in the market by free choice. Legal Equality- is a situation in which everyone has the same economic rights under the law. Free Contract- is a situation in which people decide which legal agreements to enter into. Profit Motive- is the force that encourages people and organizations to improve their material well being from economic activities.

Limits of Free Enterprise Gov’t only limits free enterprise in small ways ex. Can’t take advantage of consumers with unsafe products Some emerging nations using free enterprise set more limits Growing gaps between the rich and the poor Ex. Make companies offer the same benefits

Five Freedoms of Free Enterprise 1. Right to Private Property- ability to own your own land, thoughts, and material items. 2. Open Opportunity- Anyone can take part in the market by free choice. Ex. No one can tell you that you can’t open a deli. This creates a wide range of goods and services to choose from. Forces all business to be productive and efficient.

3. Legal Equality- Everyone in the economy is protected by same economic rights under law. Everyone has the right to succeed or fail. 4. Free Contract- People choose which agreements to enter into in the market place ex. Buying a house and agreeing to pay a mortgage

5. Profit Motive- force that encourages people to improve their wealth through economic activity Ex. You decide to open a Wawa on Route 35 to become wealthier

Competition in Free Enterprise Drives prices down to offset people true ambitions to make as much money as they can It creates reasonable prices for the consumer, but still leads to profit Ex. Gas Station Wars