1. American Free Enterprise
Chapter 3

2. Benefits of free Enterprise
You have a great idea for a new business, could you put your plan into action?
In America you can
Every day, American entrepreneurs begin new businesses that can earn profits, create jobs, and offer goods and services.

3. Look at the constitution
Fifth amendment
Article I
Article I, Section 9
Sixteenth amendment
Article I, Section 10

4. The American free enterprise system makes it possible for people who have ideas and persistence to start businesses and make them successful.

5. Basic principles of free enterprise
United states is the “land of opportunity”
Anyone from any background can achieve success
The freedom of innovation has contributed to the economic prosperity
22 million unincorporated businesses in America
Open land
Reserves of natural resources
Large, talented labor supply
But the key factor has been the American tradition of free enterprise

6. What is free enterprise
The social and political commitment to giving people the freedom and flexibility to try out their business ideas and compete in the marketplace

7. America Free Enterprise
Private Property
Economic Freedom
Profit Motive
Competition
Self-Interest
Contracts
Voluntary Exchange
Consumer Sovereignty
Legal Equality
What is Free Enterprise?

8. Profit motive
Drives individuals and businesses to make decisions that improve their material well- being
Business owners and managers make choices themselves based on what will increase their profits
Forces business owners to exercise financial discipline because they are responsible for their own success or failure
Encourages entrepreneurs to take rational risks, and reward innovation by letting creative companies grow
Improves productivity by allowing more efficient companies to make more money

9. Open opportunity Principle that anyone can compete in the marketplace
Different people will have different degrees of success
We believe that anyone who wants to start a business should have a chance
No matter how much money you start your business with, you can end up wealthier or poorer depending on how your business performs

10. Legal equality Principle that everyone has the same legal rights
This maximizes our human capital

11. Private property The cornerstone of the free enterprise system
Gives people the right to control their possessions and use them as they wish
Allows people to make their own decisions about their own property
Personal ownership provides and incentive for property owners to use their property wisely and conserve the resources

12. Freedom to buy and sell
The right of free contract allows people to decide what agreement they want to enter into
The right of voluntary exchange allows people to decide what, when, and how they want to buy and sell
Not forces to buy or sell particular goods at particular times or a specific prices
Voluntary exchange encourages competition
Competition provides consumers with the choice of a larger variety of goods, most of which are sold at reasonable prices

13. The role of the consumer
Consumers have the freedom to make their own economic choices
Through voluntary exchange, consumers tell businesses what to produce and how much to produce
The tell businesses when they do not buy goods and services

14. Economic freedom and the constitution
The right to own property
To become an entrepreneur
Freedom of speech
Right to vote

15. Property rights
In many countries the government can seize property for its own use.
The fifth amendment states that “ no persona shall be… deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”
The right of the government to take private property for public uses is called eminent domain.
Government must pay the person the fair value of the property that has been taken

16. taxation
Congress has the power to tax only in the ways the constitution allows
Taxes in each state are based on the number of people living in the state

17. contracts
No legislature can pass a law changing the terms of someone’s business agreement/contract

18. Role of the government in the marketplace
Carry out constitutional responsibilities
Protect property rights
Contracts
Business activities
Promote public interest—concerns of society as a whole
Pollution
Unsafe food and medicine

19. Information and free enterprise
Educated consumers make the free market system work more efficiently
Why you are taking this class
Governments make sure that producers provide consumers with information
Public disclosure laws
Energy efficient tags on appliances
Terms and conditions
Side-effects
Federal trade commission act—advertisements cannot be deceptive
Truth in lending act—must disclose interest rate

20. Protecting public health, safety, and well-being
Although the government does not get directly involved in running private businesses, it does place some limits on their actions in the public interest
Protecting consumers
Manufacturing standards
Supervises the conditions in which foods are produces
Regulates labels on consumer packages
Zoning laws

21. Major federal regulatory agencies
FDA
FED
FTC
FDIC
FCC
SEC
STP
NLRB
FAA
EEOC
EPA
OSHA
CPSC
NRC
1. Agency and Date Created
2. Role

22. Negative effects of regulation
During the 1960’s and 1970’s popular demand for government protection of consumers and the environment resulted in the creation of several new governmental agencies and regulations
Government regulations can have negative effect on both businesses and consumers
Cost
Cutting profits
Slowing growth
Stifle competition resulting in unnecessarily high prices
Raise government spending