1. CH.3- AMERICAN FREE- ENTERPRISE Economics-Ch3 L1-American Free Enterprise Capitalism

2. FREE ENTERPRISE Under free enterprise, resources are privately owned, and competition is allowed to flourish with a minimum of government interference. The terms free enterprise, free market, and capitalism are used interchangeably to describe the economic system of the United States. A capitalistic free enterprise economy has five important characteristics: 1.economic freedom 2.voluntary exchange 3.private property rights 4.the profit motive 5.competition.

3. ECONOMIC FREEDOM Economic freedom means more than being able to buy the things you want. It means that you have the freedom to choose your occupation, your employer, and your job location. Businesses are free to hire the workers of their choice, and they are free to produce the products they think will be the most profitable. Businesses can make as many items as they want, sell them wherever they please, and normally charge whatever price they choose.

4. VOLUNTARY EXCHANGE voluntary exchange —the act of buyers and sellers freely and willingly engaging in market transactions. benefit both the buyer and the seller, or the exchange would never occur. For example, when buyers spend their money on a product, they act on a belief that the item they purchase is of greater value than the money they give up—or they would not make the purchase. When sellers exchange their products for cash, they believe that the money they receive is more valuable than the product they sell— otherwise they would not make the sale.

5. PRIVATE PROPERTY Private property rights allow people to own and control their possessions as they wish. Private property gives people the incentive to work, save, and invest. 14 th Amendment states that the gov. cannot "deprive any person of life, liberty, or property, without due process of law." Private property makes borrowing possible and investing attractive. If you own property, you can use the property as collateral if you need to take out a loan. Both of these features—borrowing and investing—are much more difficult in a command or a socialist economy, if they happen at all.

6. PROFIT MOTIVE Under free enterprise capitalism, people are free to risk any part of their wealth in a business venture. Profit is the money you make after paying for the resources involved in producing the products sold. The profit motive —the incentive to improve material well-being—is largely responsible for the growth of a free enterprise system. The freedom to seek profits helps to guarantee that there is a never- ending stream of producers, new and old. The lure of profits is the single most important thing that assures us of a never-ending supply of goods and services.

7. COMPETITION Capitalism thrives on competition —the struggle among sellers to attract consumers with the best products at the lowest prices. Free enterprise capitalism allows competition to flourish, benefiting both producers and consumers alike. Competition benefits consumers-unpopular products will cease to be produced if consumers do not buy them. Competition also benefits consumers- assuring them that producers are always working to bring newer, better, and less expensive products to market. Competition benefits the economy by ensuring that the most efficient producers of a product will survive, while the least efficient producers will be forced to shut down. In a world of scarce resources, competition helps to assure that these resources are used as efficiently as possible.

8. INDIVIDUAL FREEDOM Individual freedom is almost the same as the “economic freedom”, in some ways the two overlap—with economic freedom being both a characteristic and a benefit of capitalism. It would not be possible to have a free enterprise capital system with out strong and stable democratic traditions. Many of the choices we make—from the type of food we buy to the choices we make about our occupation, our employer, and our job location—would not be possible without an economy based on free enterprise capitalism.

9. ADAPTING TO CHANGE It’s important to remember, free enterprise capitalism is subject to government regulation, but not government control. Market economies adjust daily to the forces of change. The adjustment takes place mainly through the price system, and a change in the price of one product can affect changes in other industries. These adjustments are often difficult to observe day by day, but when observed year by year or even decade by decade, the changes are significant.

10. PROMOTING PROGRESS Business and entrepreneurs are allowed to freely enter markets and compete for the dollars that consumers are willing to spend. The result will be economic progress in the form of a continuing supply of newer and better products. The intense competition among firms to get business takes the form of better products and, usually, lower prices—both of which promote progress.

11. DISADVANTAGE OF FREE ENTERPRISE CAPITALIST SYSTEM Sometimes growth is relatively fast, and at other times it takes a step back. Most recently, the U.S. economy went through what is now called the Great Recession, which started in December of 2007 and lasted until mid-2009. Periods of uneven economic growth are not pleasant, but they do remove some of the “fat” or unneeded activities in businesses and public services. Another disadvantage of free enterprise capitalism is that the rich seem to get richer while the poor seem to stay poor.

12. CHAPTER 3, LESSON 2 ROLES AND RESPONSIBILITIES IN A FREE ENTERPRISE SYSTEM The role of entrepreneur is vital to a free enterprise system The entrepreneur is the person who organizes and manages the land, capital, and labor in order to seek the reward called profit. Entrepreneurs are important because they are the ones who start new businesses such as restaurants, automobile repair shops, and Internet cafes, among other types of businesses. Entrepreneurs are usually people who want to “be their own boss” and are willing to take risks to make their dreams come true. Most entrepreneurs fail, but others survive and manage to stay in business with varying degrees of success.

13. ENTREPRENEURS Successful entrepreneurs attract other firms to the industry who rush in to “grab a share” of the profits. To remain competitive and stay in business, the original entrepreneur may have to improve the quality of the product or cut prices, which means that customers can buy more for less. In the end, the entrepreneur’s search for profits can lead to a chain of events that brings new products, greater competition, more production, higher quality, and lower prices for consumers.

14. THE ROLE OF THE CONSUMER Consumers have power in the economy because they ultimately determine WHAT to produce. If consumers like a new product, the producer will be rewarded with profits. If consumers do not buy the new product, the firm may lose money or even go out of business. The term consumer sovereignty recognizes the role of the consumer as sovereign, or ruler, of the market.

15. THE ROLE OF GOVERNMENT The role of government—whether national, state, or local—stems from the desires, goals, and aspirations of its citizens. Government has become involved in the economy because its citizens want it that way. Government has become a protector, provider, regulator, and consumer. The role of government in the economy is justified whenever its benefits outweigh its costs.

16. THE GOVERNMENT AS PROTECTOR As protector, the U.S. government makes laws such as those against false and misleading advertising, unsafe food and drugs, environmental hazards, and unsafe automobiles. It also enforces laws against abuses of individual freedoms.

17. THE GOVERNMENTS ROLE AS PROVIDER All levels of government provide goods and services for its citizens. The national government supplies a system of justice and national defense. It provides subsidies to parts of the economy, such as agriculture. In addition, it gives funding to state and local governments for programs such as road construction. State governments provide education, highways, and public welfare. Local governments provide parks, libraries, sanitation, and transportation services.

18. THE GOVERNMENTS ROLE AS REGULATOR The national government is charged with preserving competition in the marketplace and oversees communications, interstate commerce, and even entire industries such as banking and nuclear power. State governments oversee insurance rates and automobile registrations, while local governments regulate economic activity with building and zoning permits. The regulatory role of government is often controversial. Consumers, however, do not always know when they are at risk from hazards, such as potential poisoning from unsafe food preparation or false and misleading advertising from some companies.

19. THE GOVERNMENTS ROLE AS CONSUMER The tasks of protecting, providing, and regulating are expensive. This means all levels of government, like any business, consume scarce resources to fulfill their role. Government has grown so much in recent years that it spends more than all private businesses combined.

20. CHAPTER 3, LESSON 3 EVALUATING ECONOMIC PERFORMANCE Economic freedom is a cornerstone of American society. Americans traditionally place a high value on the freedom to make their own economic decisions. They like to choose their own occupations, employers, and uses for their money. Business owners like the freedom to choose when, where, and what they produce.

21. ECONOMIC EFFICIENCY Most people recognize that resources are scarce and that factors of production must be used wisely. If resources are wasted, fewer goods and services can be produced, fewer wants and needs can be satisfied, and fewer resources can be left for future generations. Because economic decision making needs to be efficient, economic efficiency is also one of our major goals.

22. ECONOMIC EQUALITY Americans have a strong tradition of justice, impartiality, and fairness. Many people, for example, believe in equal pay for equal work. As a result, it is illegal to discriminate on the basis of age, sex, race, religion, or disability in employment. At the national and state levels, we have established the minimum wage —the lowest legal wage that can be paid to most workers. In the interest of fairness, most people believe that advertisers should not be allowed to make false claims about their products. Many states even have “lemon laws,” which allow new car buyers to get their money back for a car with too many defects.

23. ECONOMIC SECURITY To protect people who lose their jobs, states have set up unemployment compensation programs to help workers who lose their jobs through no fault of their own. At the national level, Congress has set up Social Security —a federal program of disability and retirement benefits that covers most working people. Today, more than 90 percent of all American workers participate in the Social Security system. Most retirees and some widows, people with disabilities, and others are also eligible for benefits. Medicare, a federal health insurance program for senior citizens, regardless of income, is another program that provides economic security to elderly Americans.

24. PRICE STABILITY Another goal is to have stable prices. If inflation —a rise in the general level of prices—occurs, workers need more money to pay for food, clothing, and shelter. People who live on a fixed income —an income that does not increase over time, even though prices do—find that bills are harder to pay and planning for the future is more difficult. High rates of inflation can even discourage business activity. During times of high inflation, interest rates on loans tend to increase along with the price of goods and services. If interest rates get too high, they can discourage both borrowing and spending by businesses. Price stability adds a degree of certainty to the future for businesses and consumers alike.

25. ECONOMIC GROWTH The major goal of most Americans is economic growth. Most people hope to have a better job, a newer car, their own home, and a number of other things in the future. Overall growth enables more people to have more goods and services. Because the nation’s population is likely to increase, economic growth is necessary to meet everyone’s needs.