1. CH 3.1 Preserving Economic Freedoms
How does the government protect Americans’ economic rights
Government policies that serve public interest
Government intervention in protecting public health, safety, and well being

2. Protecting the American People
Until around the 1960’s, there was little regulation of products that could affect the well being of Americans
Businesses could manufacture goods in a manner that suited their needs over the public
Govt started getting involved in public interest
Concerns of the public as a whole

3. 7 Major Features of American Free Enterprise
1. Economic Freedom - Individuals (where to work)
Businesses can also chose who they hire, what to produce, how much to produce, how much to charge
2. Competition - producers have the right to engage in rivalries to gain business
Drives producers to create new and better products
Creates more choices for consumers

4. 3. Private Property - Individuals and businesses can buy and sell as much property as they like.
Property owners can prohibit others from using their property
4. Contracts - Legally binding agreements between individuals to buy and sell goods
5. Self Interest - Decisions made by both individuals and businesses to benefit themselves
Do not have to please the govt, other consumers or producers

5. 7. Profit motive - Driven for the desire for profit
6. Voluntary Exchange - Consumers and producers may freely buy and sell goods when it is worthwhile for them
Both parties expect to gain from the exchange
7. Profit motive - Driven for the desire for profit
Profit is a powerful incentive that leads entrepreneurs and businesses to accept the risk of business failure

6. If business is driven solely by profit, there is no incentive to keep people safe
Regulating industries that affect public safety and health is one way the govt influences the economy
This has been an issue through time
Costs money
Places limits on business activity
Limits choice
Trade off that most Americans are willing to make on some level
People are willing to give up some amount of freedoms to keep society safe

7. Consumer control in Free Enterprise
1. Through what they buy, consumers tell producers what to make, how much to make, and how much to charge
Consumer Sovereignty
2. By voting, consumers can control the governments policies regarding the economy
The govt responds to public interest issues by creating public policy
Laws and standards on topics of public interest

8. Public Policy
To try to meet a goal, individuals may join an interest group
A private organization which tries to persuade public officials to vote according to what they want done
Raise funds to campaign for what they want
Can be beneficial for the majority, or can serve the needs of a select group

9. Information
Correct information is vital to making your decision when there are many goods to choose from
Public disclosure laws - companies are required to give full information about their products
Peanuts!!!

10. Environmental Protection
Until the 1960’s there was little control over the conduct of business
Pollution of water, land and air
Cuyahoga River, OH
Environmental Protection Agency
Strict regulations and clean up requirements
How much is too much?
Businesses argue that too much control limits the profits they can make
Consumers ask for more protection and control

11. Protecting Health, Safety and Well Being
Consumer protection
Caveat emptor - buyer beware
Lab tests on food, medicine
Labels on food that include expiration dates
Worker health and Safety
Occupational Safety and Health Administration (OSHA)
Regulations on workplace safety
Information about health threats must be divulged

12. 1906 - Food and Drug Administration
Standards on food, drugs, and cosmetics
Federal Trade Commission
Enforces and enacts antitrust and monopoly laws
Equal Employment Opportunity Commission
Promotes equal job opportunity through enforcement of civil rights laws, education and other programs

13. 1970 - Environmental Protection Agency
Enacts policies to protect human health and the natural environment
OSHA
Enacts policies to save lives, prevent injuries, and protect health of workers

14. Ch 3.2 Providing a Safety Net
How does the US fight poverty
What are some ways the US redistributes wealth

15. The Free Market and Poverty
The free market has created more wealth than any other economic system
Wealth is not shared equally
Many people live below the poverty threshold
Income level below what is necessary to support families or households
40% of the world’s wealth is owned by 1% of the population
85% is owned by 10%

16. Poverty Threshold 1999 - Single parent/ one child
$11,235
Four person Family
$16,530
Two Person family
$15,590
Four person family
$23,550

17. Govt Role: Those with less opportunity to be productive often suffer
Lack of local jobs and few educational opportunities
Our society recognizes the need to care for the very young and the very old, the sick, the poor and the disabled
Different State and Federal programs have been set up to care for these individuals

18. The Welfare System
One way to ease poverty was to collect taxes and redistribute this money to the poor
1930’s under FDR
1960’s LBJ’s “War on Poverty”
Welfare payments kept getting bigger
Less and less incentive to get off of welfare
There are many redistribution programs designed to aid the poor and those in need in different ways

19. 1. Cash Transfers Direct payments to the poor, disabled and retired
Social Security
1935
Elderly
Payroll taxes from working people to provide for retired
Temporary Assistance for Needy Families (TANF)
1990’s
A way to aid the needy, but with smaller payments
Established as a way to keep people from becoming dependent on these payments
Lifetime limit on payments
Move people into the workforce

20. 2. Unemployment 3. Workers Compensation
Funded by both the Federal and State Govts
Provides money to eligible workers who lost their jobs
Workers must show that they are continuing to look for work while receiving benefits
3. Workers Compensation
Provides money to workers injured on the job
Covered by insurance paid for by employers
Becoming more costly
Medical Expenses have increased since the 1970’s
Number of claims has gone up

21. 4. In Kind Benefits
Goods and services provided at a reduced price or for free
Food Stamps
Subsidized Housing
Legal Aid

22. 5. Medical Benefits
Govt provides health insurance for the elderly, the disabled and the poor through different programs
Medicare - people over 65
Medicaid - covers some poor, unemployed, and some not covered by their employers
Works through the Social Security program
Very Expensive

23. 6. Education
Federal, State and local Govts all provide opportunities for the poor
Federal pays preschool to college
State and local - help pay for those with learning disabilities
Adds to a nation’s human capital
Shifts PPF to the right

24. CH 3.3 Providing Public Goods
Market Failures
Examples of Public Goods
Government allocations of resources by managing externalities

25. Market Failures
When a market does not distribute resources efficiently on its own
Ex. Roads
Public Goods
Govt may step in when it determines that its intervention and policy outweighs the drawbacks of intervening

26. Public Goods
A shared good or service for which it would be inefficient or impractical to:
1. Make consumers pay individually
2. Exclude non payers
Ex. Roads, dams, National parks, other major public works
Govt takes taxes and distributes them instead of charging for these services separately
If more people use it, benefit will not diminish
Roads continue to work even with traffic

27. Public vs Private Sector
Public goods are financed by taxes
Public Sector
Part of the economy that involves Govt transactions
Private Sector
Transactions of individuals and businesses
“Free rider” problem -
People not willing to pay for good or service, but uses it if it is provided
Fire prevention
Market failure – consume goods without cost

28. Externalities
A side effect of a good or a service that generates benefits or costs to someone else
Could be + or –
Positive
Flip This House
Training programs

29. Market failure because costs are not assigned properly
Negative
Unintended costs
Part of the cost is now on someone other than the producer
Water pollution
Market failure because costs are not assigned properly
Govt creates + (education)
Tries to limit – (pollution = costs associated now back on producers)

30. CH 3.4 Promoting Growth and Stability
How does the Govt track the business cycle
Govt’s economic goals
Why, how does the govt encourage innovation

31. Business Cycles
Period of macroeconomic expansion followed by a period of contraction (decline)
Macro – study of decision making and behavior of entire economies
Micro – behavior and decision making of small units (indiv., small businesses and families)

32. Predicting Business Cycles
Gross Domestic Product – GDP – Total value of all the final goods and services produced in an economy
Used to predict a business cycle and measure the economic well being of a nation’s economy

33. Public policy is used to stabilize the economy – three goals
1. High employment
Desirable unemployment rate 4.5 – 5.5 %
Has ranged in the US between 3 and 11 last 60 yrs
2. Steady Growth
For each generation to do better than the last, economy must grow to offer additional goods and services
3. Stability of prices
Prevention of sudden shifts in prices
Dramatic price increases can alter macroeconomic decisions
Regulation of banks and other financial institutions

34. Innovation Increase in productivity = higher standard of living
Improved technology = more goods produced from the same amount of resources
Operate more efficiently
“more, better, faster”
Govt provides grants/subsidies to industries for research and development
$ given to colleges
Patents (last 20 years)/ copyrights
In the Constitution