1. [ 2.5 ] Benefits of Free Enterprise

2. Basic Characteristics of Free Enterprise
Opportunity
Incentives
Profit Motive
Competition
Legal Equality
Private Property Rights
Economic Freedom

3. Basic Characteristics of Free Enterprise
While 1990 to 2007 was generally a time of solid economic growth, a deep recession occurred in 2007–2009. Analyze Graphs What does this graph tell you about productivity in the period 2007–2012?

4. Key Roles in the Free Enterprise System
The Role of the Consumer
The Role of the Entrepreneur

5. Economic Freedom and the Constitution
Property Rights
Taxation
Contracts

6. The Limited Role of Government in the Marketplace
Information and Free Enterprise
Protecting Public Health, Safety, and Well-Being
Negative Effects of Regulation

7. The Limited Role of Government in the Marketplace
Over time, government has increased its regulation of the economy. Determine Relevance How might the Consumer Financial Protection Bureau help protect the public?

8. Quiz: Basic Characteristics of Free Enterprise
Which of the following is an example of the profit motive as an incentive?
A. A business owner expands a factory to make more goods.
B. A shopper chooses a product because of its low price.
C. A producer starts a benefits program for workers.
D. A consumer engages in a voluntary exchange.

9. Quiz: Key Roles in the Free Enterprise System
When consumers choose not to purchase a good, what is one likely response by the producer of that good?
A. raise the price of the good
B. keep the price of the good at the current level
C. return the price of the good to an earlier level
D. lower the price of the good

10. Quiz: Economic Freedom and the Constitution
The due process clauses of the Constitution support the principle that
A. no legislature can keep an owner from selling his or her private property.
B. only through a public trial can government take someone’s private property.
C. private property can never be taken from an owner.
D. government can take private property only to meet a public need.

11. Quiz: The Limited Role of Government in the Marketplace
How might government water-pollution regulations serve the public interest?
A. by keeping waterways open for the transport of goods
B. by restricting the watering of lawns during a drought
C. by limiting the amount of water a business could use
D. by ensuring that water does not contain toxins that could endanger people

12. [ 2.6 ] Supporting Economic Growth

13. Tracking the Economy GDP as a Measure of the Business Cycle
Forecasting the Business Cycle

14. Tracking the Economy
The United States Treasury, shown here, is one of many U.S. government agencies that monitor the economy.

15. Tracking the Economy
Business cycles at one time featured wild swings of growth and decline but have in recent decades settled into a moderate pattern. Analyze Graphs What has the United States gained—and lost—with the more moderate cycles of recent decades?

16. Encouraging Economic Strength
Because the market is vulnerable to business cycles, the government tries to create public policies that promote economic strength. Again, the nature and extent of these policies have changed over the course of history. For example, in the 1800s, almost every decade brought a new financial crisis, but the federal government could do little to avert these catastrophes. As new agencies were created in the 1900s, the government gained more knowledge about the national economy and more tools to influence it. In general, policymakers today use these tools to promote economic strength by pursuing three main goals: high employment, growth, and stability—stable prices and secure financial institutions.

17. Encouraging Economic Strength
Maximum Employment
A Growing Economy
Stability
Secure Financial Markets
Economic Citizenship

18. Encouraging Economic Strength
This traditional measure of standard of living does not include many measures that might affect people’s quality of life. Identify Central Issues How might levels of education, poverty, income inequality, and health impact standard of living?

19. Encouraging Economic Strength
The economic crisis of 2008 triggered vigorous debate over government support for the banking industry. Here, citizens clash at a rally protesting the influence of major financial institutions in the United States.

20. Productivity and the Role of Technology
The American economy supports a far higher standard of living than most economies of the world. As you have learned, one way to preserve that high standard is by increasing productivity—producing more outputs from the same or a smaller quantity of inputs.

21. Productivity and the Role of Technology
Technological Progress
Encouraging Innovation
The American Work Ethic

22. Quiz: Tracking the Economy
Why do government experts track the business cycle?
A. to provide a record of what has gone wrong in the past
B. to try to predict what will happen to the U.S. economy
C. to help maintain competitive balance between businesses
D. to give the government a competitive advantage over businesses

23. Quiz: Encouraging Economic Strength
Which of these might indicate that the national economy is stable?
A. Prices for groceries and other daily needs go down from year to year.
B. Prices for groceries and other daily needs stay about the same from year to year.
C. Prices for groceries and other daily needs go up from year to year.
D. Prices for groceries and other daily needs are tightly regulated.

24. Quiz: Productivity and the Role of Technology
How does improved technology allow the economy to operate more efficiently?
A. It enables people to work fewer hours.
B. It ensures that all of the nation’s resources will be used.
C. It ensures that all of the nation’s workers are employed.
D. It helps to make better use of the nation’s limited resources.

25. [ 2.7 ] Public Goods and Externalities

26. Public Goods What Makes a Public Good Weighing Costs and Benefits
Free-Rider Problem

27. Public Goods
Mail delivery is a service government has provided since the earliest days in the nation’s history. Draw Conclusions Why do you think the federal government chose to provide this service rather than letting a private company do it?

28. Public Goods
Public goods are created after a cost-benefit analysis like this one. Compare and Contrast Study the fictional event described here. Why was the Capp County bridge built as a public good rather than in the free market?

29. Market Failures
Public goods are examples of what some economists call a market failure. The term does not suggest that the free enterprise system does not work. Rather, market failure describes a specific situation in which the free market, operating on its own, does not distribute resources efficiently.

30. Market Failures
In the 1930s, utilities had no incentive to string electric lines to isolated areas. Government took on that task with the Rural Electrification Administration. Infer Why do you think the government was willing to help bring electricity to rural areas?

31. Externalities
Out-of-state drivers can travel over roads that they did not pay to have built. Nonpayers as well as payers enjoy the environmental benefits of national parks. Both of these examples involve what economists call externalities. An externality is an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume. Externalities may be either positive or negative.

32. Externalities Positive Externalities Negative Externalities
Government’s Goals
Government-Driven or Market-Driven Solutions?

33. Externalities
Building the Capp County bridge resulted in positive and negative externalities. Analyze Charts Explain how businesses are both helped and hurt by the building of the bridge.

34. Externalities
Air pollution and water pollution created by factories such as these are negative externalities.

35. The Poverty Problem
You’ve seen it all around you: on TV shows, in the news, maybe even in your community. There are vast differences between people who have a lot of money, enough money, and very little money. On the average, Americans enjoy a high standard of living. Yet about 15 percent of Americans live in poverty. And for people under the age of 18, the percentage is even higher.

36. The Poverty Problem
The Government’s Role
The Welfare System

37. The Poverty Problem
This sign announces that shoppers can use an EBT card—food stamps—to pay for their purchases. Food stamps are an example of a government program that redistributes wealth.

38. Quiz: Public Goods
What is one reason that local law enforcement is considered a public good?
A. Everyone in the community benefits from it.
B. Nobody in the community has to pay for it.
C. Private firms make a profit from producing it.
D. Individual citizens pay directly for it.

39. Quiz: Market Failures
Public goods are examples of market failure, because producing these goods in the free market
A. shows that the free enterprise system cannot distribute resources.
B. helps entrepreneurs learn how to distribute public resources.
C. does not allow for the efficient distribution of resources.
D. encourages private businesses to distribute resources efficiently.

40. Quiz: Externalities
Which of the following is an example of a positive externality resulting from an outdoor band concert?
A. A pair of endangered birds leave their nest in a nearby tree when the concert starts.
B. An elderly woman in her apartment hears a song that she liked as a child.
C. A pizza parlor closes early, because all of its customers are at the concert.
D. A traffic jam occurs as drivers hunt for parking spots near the concert.

41. Quiz: The Poverty Problem
The goal of government welfare programs is to
A. eliminate the dependence of people on the welfare system.
B. maintain a poverty threshold that matches the median income.
C. eliminate the income gap between the richest Americans and the poorest.
D. raise the standard of living of certain less-fortunate members of society.