1. Chapter 2 : Free Enterprise in the US
Business economics
Chapter 2 : Free Enterprise in the US

2. Learning Targets… I can…..
Explain why private property, specialization, voluntary exchange, the price system, market competition, and entrepreneurship are considered the pillars of free enterprise
Describe the nature of command, traditional, and mixed economic systems
Describe how the circular flow of money, resources and products illuminates the function of a free market economy
Demonstrate the definition of money and it’s three economic uses
Identify the goals of the US economic system

3. Free Enterprise
Free Enterprise – people in their economic roles are free to make choices.
Think of the millions of choices people in the US make each day in their roles as consumers, savers, investors, workers, business owners, and government officials.
Examples…..
In a building, a pillar is a vertical column that provides strength and support for the entire building.
The laws of a country and the values of its people must support free enterprise if it is to work as an economic system.
The six pillars to free enterprise are:
Private property, specialization, voluntary exchange, the price system, market competition, and entrepreneurship.

4. Private property
Private property – the resources and products owned by individuals or businesses.
Public property – refers to the resources and products owned by government.
In Economics terms this term also includes buildings, machines, tools, natural resources, and even clothing, appliances and musical instruments.
In the US we decide how to use our property
Do you own a car, a DVD player, an iPhone?
You decide what to do with these, lend them to friends, sell them, use them, etc.
The right to own and control private property gives owners a reason to use their property as efficiently as possible.
In the US citizens can own property for business purposes and use it to produce income.
Privately-owned companies, both US and foreign produce 90% of the goods and services available each year in the US
Some economists believe the right to private property is the MOST important pillar of free enterprise.
Answer Page 17 CYU in your Google Doc/Word Doc.

5. specialization
Specialization – a process in which businesses and people focus on producing one or a few parts of an entire product.
Examples….. GAP…..name some more?
Individuals in business also specialize, i.e administrators, people who sew clothes, clean buildings are night, etc.
Specialization allows a business to increase the amount it produces and sells.
Generally, specialization contributes to higher wages and profits.
Page 18 answer the questions at the top in your Google Doc

6. Voluntary Exchange Specialization leads to voluntary exchange
People must buy and sell things because they can’t produce everything themselves
A pencil cannot be produced by one person....explain the process to your elbow partner.
In our economy people depend on others to voluntarily produce and exchange products.
If this didn’t happen we would have to go without many products and services that are part of our modern lifestyle.

7. The price system
The price system is closely related to private property.
The price system – uses monetary prices as a message system to facilitate exchanges between buyers and sellers.
This is why economists often refer to a market economy as a price system.
(First) prices communicate to businesses how willing customers are to purchase the product.
At the same time – the prices of resources tell business owners which resources will be least expensive for them to use in producing a product.
(Second) prices provide strong incentives to businesses and consumers. Example gasoline increasing prices signal a need to increase production.

8. The price system
In determining prices, business owners ALWAYS have to consider profit.
If you make a profit that encourages you to stay in business longer
Prices cannot explain ALL economic behavior.
People have values they act on apart from the price system…
Examples…..
Convenience, service, loyalty, and product selection are all factors that consumers consider in their buying choices.
Page 19 answer the AYU questions at the top and the What’s Important to Me at the bottom in your Google Doc

9. Market Competition
What does the word competition mean to you, Think….Pair…..Share (2 mins.)
In a free enterprise system people everywhere compete for resources and products because they are scarce.
Competition between businesses is called Market Competition.
There are two forms:
Competition in Resource Markets – resources are the land, labor, and capital that businesses use to produce goods and services.
Let’s think together of some examples, I’ll go first….Go to college, develop your education and talent and you are more desirable.
Competition in Markets for Products – Product markets include all the goods and services consumers buy, from running shoes to haircuts.
Let’s think together of some examples, I’ll go first….Someday you may want to buy a house….who will you be competing with?
Buyers aren’t the only ones competing? Sellers do as well….

10. Market Competition Earning a profit isn’t easy
Producers continually introduce new products and start new businesses with no guarantee people will want what they are selling
They must give people the goods and services they want, when and where they want them to stay in business.
Rivalry often increases production, productivity, employment and incomes.
Think, Pair, Share with your elbow partners four rival companies (can’t duplicate what they say so take turns back and forth)

11. entrepreneurship
This is the motivation that drives business leaders to compete and react to changing conditions in the market.
Entrepreneurs see opportunities and they jump on them……let’s check it out – Shark Tank…..

12. Other economic systems
Check out page 22
I want you to create a Google Doc explaining to a “regular person” the important parts to each economic system
Requirements….
Single page
Use bullets
Add pictures
Give example countries
Be creative and have fun!
Add it to Google Classroom when done

13. Models Models represent the “real world”
They simplify our complex world and help us understand it
A model can be made to scale, like an airplane, which means the model’s size is some fraction of the size of the object that it represents
It can also be a drawing or a diagram which shows you how something works
Check out Page 23 Figure 2-1 Read the Paragraph about it and answer the CYU questions in your Google Doc.

14. households
Economists use households to describe people living in the US regardless of type of house, etc.
Members of households are consumers, we participate in the goods and services market when we buy stuff. But where do we get $?
When we participate in the labor market 
Combining the different elements of the economy into the model shows how production and exchange are tightly linked in a free enterprise economy.
Households provide labor and then buy goods and services
Businesses produce goods and services for households and pay wages for households to buy good and services
People in an economy depend on one another…..

15. The circular flow as a descriptive model
Obviously many details are left out of the model. It’s a simple model.
Govt. is an important part of our economy too
Teachers work for the govt., households pay taxes to the govt. for services, etc.
Goods and Services – tanks, paper clips, medical care – flow from the govt.
Businesses use services provided by the govt.
Examples…..

16. Making the flow grow
Increased production, employment, and income are signs of economic growth
The circular flow moves faster when the economy grows
The goods and services around it change too…
Examples: manual typewriters…..cassette tapes…..
Turn to your elbow partner and list 3 things that have changed in the last 20 years.
Demand for resources has changed too.
Sand once thought useless has silicon that is now used in circuits, solar cells and transistors
Online banking and e-bills have changed the use of money.
What about paper money and coins?
Page 25: TC in your Google Doc

17. Money and the circular flow
The circular flow model of free enterprise in the US shows how voluntary exchange works.
For it to work smoothly we need to have money
We usually think of money as bills and coins but in Economics it can be anything that is generally accepted as payment for goods and services.
Search online for a country that uses something other than bills and coins for payment….
Barter – trading goods and services without money.
Page 26 AYU in Google Doc (5-7 minutes to complete)
Today, money has 3 important functions
A medium of exchange
A store of value
A measure of value

18. Medium of exchange
Instead of exchanging your labor for hamburgers, you can trade it for money
The money is like a coupon indicating you are owed a specific portion of the goods and services offered in the community.
Then because business accept money for most goods and services you can exchange it for what you want.
When people agree on the value of money, it becomes a medium for exchange
Exchanging labor for goods and services is much easier when the value of your labor is identified in money terms AND what you want to buy is also identified in money terms.

19. Store of value
Money is an important store of value – this means you can hold on to it to use in the future.
So instead of being paid in hamburgers you get paid in dollars (in the US) that you can put in your pocket (or the bank) and save it for something you want later.
This is saving buying power
It will not lose value like a hamburger would
The burger would get cold and gross and it would not have any value a week from today. (well probably no value in a couple hours )

20. Measure of value
Money also indicates the relative value of products and resources
In a barter system – one item has many different values depending on the value of the item that it is exchanged for….
When money is used in exchange, each product has a single money price.
People can compare many prices to find the best deal
Would you do this to make money or get the best “deal”?
What are the tradeoffs?
Money is the oil in the engine of free enterprise
It makes voluntary exchange efficient and it reduces disagreements between buyers and sellers
Without money a free enterprise system just wouldn’t work
Page 27 What Function is Money Serving in your Google Doc AND Page 27 TC in Doc

21. Goals of the us economic system
Most Americans agree on a set of basic economic goals:
Full employment
Economic growth
Price stability
Economic freedom
Economic security
Economic equity
Efficiency

22. Goals of the economic system
Full employment – means that almost all people in the labor force are able to find work.
Economic growth – means an increase in output of goods and services in the US economy during a year.
Price stability – means that prices of goods, services, and resources do not fluctuate significantly, either up or down, in short periods of time.
Economic freedom – means freedom of choice in employment, buying, selling, use of our time, and other decisions related to our economy.
Economic security – means that the basic needs of every person should be met.
Economic equity – means fairness and impartiality
Efficiency – means getting the maximum output from the resources used to produce goods and services.

23. Summary/review Need to know for the assessment:
The six pillars of free enterprise
The circular flow model
The function of money in the economy
The broad economic goals for the US

24. Assigned work Chapter 2 Google Doc: PPT Packet All Filled in
Pages are:
17 CYU 18
19 AYU
19 What’s Important to You
23 CYU
25 TC
26 AYU
27 What function is money serving
27 TC
PPT Packet All Filled in
Study Guide Pages 13-19