1. Chapter 3

2. 3.1 Benefits of Free Enterprise
Tradition of FE
“land of opportunity”
Hard work  Success
Constitutional Protections
Guarantee freedoms…make business easier (a.k.a. more $$)
Property Rights
Protected (5th Amendment)
Gov. can’t take property from ind.
Except… eminent domain
Taxation
Legal and fair ways

3. 3.1 Benefits of Free Enterprise
Basic Principles of F.E.
Profit Motive
Improve well being ($$); SELF-INTEREST
YOU are responsible for success/failure
Open Opportunity
EVERYONE can compete (Rich  poor  rich)
Legal Equality
Same legal rights for ALL  max. human capital
Private Property Rights
Make own decisions about possessions/property

4. 3.1 Benefits of Free Enterprise
Free Contract
Decide on your OWN what agreements you enter
Voluntary Exchange
Decide what and when they want to buy/sell (not forced at particular time)
Competition
Decrease cost, increase variety of goods
Role of Consumer
C.Sov.- production based on their purchases…Interest groups

5. 3.1 Benefits of Free Enterprise
Role of Government
Public disclosure (laws)
require companies to give the public important info about their products
Fuel/energy efficient, nutrition facts,
Public Interest
Cars, food medicine
Disposal of materials
Zoning laws
Standards, sanitary conditions, labels

6. 3.1 Benefits of Free Enterprise
Role of the Government (cont.)
Negative Effects of Regulation
Rules costly, cuts profits, slows growth & prices
competition and gov. spending
Ex: FDA (food/drug) FCC (financial) FAA (airline) EEOC (employment) EPA (environment) OSHA (safety)

7. 3.2 Promoting Growth and Stability
Government goals….
Stabilize business cycles,
Promote growth & innovation
Tracking Business Cycles
Macroeconomics
Watch behavior/decision making of entire economies;
BIG picture
Microeconomics
Look at behavior & decision making of small units (ind., families, etc.)

8. 3.2 Promoting Growth and Stability
Tracking Business Cycles (cont)
Gross Domestic Product (GDP)
Total value of all final goods & services produced; used to predict business cycles
Business cycle
Expansion followed by decline
Gov intervenes to prevent wild swings in economic behavior (“high” highs, & “low” lows)
Difference b/w day to day and long term

9. 3.2 Promoting Growth and Stability
Promoting Economic Strength
Unemployment
3% -11% normal
Growth
Make next generation better increase GDP
How do you increase GDP?
Technology
Able to make more in less time, w/ less material (efficient)
Patents and copyrights = incentives!
Stability
Price levels (don’t want surge or sink)
Financial institutions (banks, stock brokers, etc)
Federal Regulators investigate fraud and manage interest rates (the “Fed”)

10. 3.3 Providing Public Goods
Gov. provides a shared good/resource when it’s impractical or inefficient to …
make everyone pay on their own or exclude nonpayers
Ex: Nat’l parks, roads, fire, military, police, etc.
Public sector: government
“Free rider”: won’t pay for goods/services, but still gets the benefits
Ex: Army helmets; neighbor won’t pay for fire protection
Private sector: individuals & businesses

11. 3.3 Providing Public Goods
Market Failure
Resources aren’t distributed efficiently by market
Ex: Road building
Externalities
Economic side effect (or consequence)
Positive or negative
Ex: -Job training, go to new job; fixing up a house
Ex:  business dumps waste in river, town must clean
**STOP**

12. 3.4 Providing a Safety Net
Sometimes US gov steps in to aid poor, disabled & elderly people
Poverty Threshold
Income level below what’s needed to support a family
Now: $ ________________ a year

14. 3.1 Benefits of Free Enterprise
Question
When is it ok for the government to take a person’s property?
What constitutional guarantees underlie the US free enterprise system?

15. 3.1 Benefits of Free Enterprise
Question
How Free is “free” enterprise when the gov can intervene (so much)?
Laws restricting f.e. not meant to penalize, but to protect everyone from economic behavior that is not in the public interest.
Make a list of laws that regulate the economy and a statement about how each law protects public interest.

16. 3.2 Promoting Growth and Stability
Question
Compare macroeconomics with microeconomics
Give an example of macro and micro econ
What is GDP ?
What does it tell economists about business cycles?

17. 3.2 Promoting Growth and Stability
Question
Give on example of a new technology that has resulted in greater productivity for the US.
Describe how economic stability is measured.