Section 3-Preview Section Preview In this section, you will learn how under capitalism the basic economic decisions of WHAT, HOW, and FOR WHOM to produce are made through the free interaction of individuals looking out for their own best interests.

Section 3-Key Terms Content Vocabulary free enterprise voluntary exchangevoluntary exchange private property rightsprivate property rights profit profit motive competition consumer sovereigntyconsumer sovereignty Academic Vocabulary incentive catalyst regulator mixed or modified free enterprise economymixed or modified free enterprise economy

A.A B.B Section 3 Can you name any countries that operate a free enterprise economy? A.Yes B.No

Section 3 American Free Enterprise In many parts of the world, capitalism has become the economic choice. Capitalism allows private citizens to own and use the factors of production to generate profits. The U.S. economy is based on free enterprise.free enterprise Characteristics of Free Enterprise Capitalism

Section 3 Capitalism and free enterprise are often used interchangeably, although meanings are different. –Capitalism stands for the private ownership of resources. –Free enterprise is the unhindered use of privately owned resources to earn profits. American Free Enterprise (cont.) Characteristics of Free Enterprise Capitalism

Section 3 Characteristics of Free Enterprise Capitalism The American economy incorporates the main characteristics of a free enterprise economy.

Section 3 There are five major characteristics of a free enterprise economy: –Economic freedom –Voluntary exchangeVoluntary exchange Characteristics of Free Enterprise Capitalism (cont.) Characteristics of Free Enterprise Capitalism

Section 3 –Profit motiveProfit motive People are free to take risks to earn a profit.profit –CompetitionCompetition Characteristics of Free Enterprise Capitalism (cont.) Characteristics of Free Enterprise Capitalism –Private property rightsPrivate property rights Private property gives individuals incentive to work, save, and invest.

A.A B.B C.C Section 3 What is largely responsible for the growth of a free enterprise system? A.Competition B.Profit motive C.Voluntary exchange

Section 3 The Role of the Entrepreneur Entrepreneurs are the driving force of the free enterprise system.

Section 3 Entrepreneurs –Organize and manage land, capital, and labor to gain a profit –Are the people who start up new businesses – Want to “be their own boss” – Are willing to take risks The Role of the Entrepreneur (cont.)

Section 3 Entrepreneurs are both the spark plug and the catalyst of the free enterprise economy. Their search for profits leads to a chain of events that brings The Role of the Entrepreneur (cont.) –New products –Greater competition

Section 3 –More production The Role of the Entrepreneur (cont.) –Higher quality –Lower prices for consumers Profiles in Economics: Tony Hawk

A.A B.B C.C D.D Section 3 Why might an entrepreneur fail? A.Not enough capital B.Poor product or service C.Not aware of competition D.All of the above

Section 3 The Role of the Consumer The economy in the United States adapts to consumers’ wants.

Section 3 Consumers ultimately determine which products are produced. If consumers like a new product, producers are rewarded with profits. Consumers not purchasing a product can cause a firm to go out of business. The Role of the Consumer (cont.)

Section 3 The phrase “the customer is always right” recognizes consumer sovereignty.consumer sovereignty Consumers are always looking for new ideas and products. The Role of the Consumer (cont.)

A.A B.B C.C Section 3 Do you believe that “the customer is always right”? A.Always B.Sometimes C.Never

Section 3 The Role of the Government The economic role of the U.S. government is decided by its citizens.

Section 3 The role of government stems from the desires, goals, and aspirations of its citizens. The Role of the Government (cont.)

Section 3 Government has become –A protector –Provider –Regulator –Consumer The Role of the Government (cont.)

Section 3 In general, the role of government in the economy is justified whenever the benefits outweigh the costs. An unintended consequence of government’s role is the emergence of the mixed or modified free enterprise economy. mixed or modified free enterprise economy The Role of the Government (cont.)

Section 3 Some people prefer to have no government involvement in the economy— which is not possible. Services like a national defense and a system of laws and justice cannot be supplied by the private sector alone. The Role of the Government (cont.)

A.A B.B C.C Section 3 Do you agree or disagree with the statement that the role of government in the economy is justified whenever the benefits outweigh the costs? A.Always B.Sometimes C.Never