1. American Free Enterprise
Chapter 3

2. Section 1: Advantages of Free Enterprise
Free enterprise system – anyone is free to start a business or enterprise
What role does the government play in encouraging free enterprise?
Review chart on page 71, what does it tell you about starting a business in America?

3. Free Enterprise and Legal Rights
Open Opportunity – everyone has the ability to enter and compete into marketplace
Legal Opportunity – everyone should have same economic rights under the law (no one has a better chance to succeed)
Free Contract – everyone has the right to decide which legal economic agreements they enter into

4. Competition over Books
From small book stores to large retailers to Amazon. Is competition always a good thing?
What happens when small book sellers go out of business? Is there still “competition” in the market?
Why are large businesses able to give better prices?
Is that always a good thing?
What about WalMart and Home Depot? Good or bad?

5. Milton Friedman
Economist who advocated free enterprise and less government involvement in all areas
Author of Free to Choose
Served as an advisor to 2 presidents

6. Section 2: How Does Free Enterprise Allocate Resources?
Profit – money left over after costs of producing goods are subtracted from revenue gained by sales
Producers – seek profit
Consumers – “vote” with their wallet
Chart on page 79 – what does this chart tell you about the “votes” of consumers about food?

7. Mixed free enterprise system – some government protections, provisions and regulations
US government involved by taxing, spending in certain areas and regulating other areas
How has government’s role in the economy changed over the years? Pg 81 chart

8. Government involvement in the economy:
Nearly 22 million workers and 2 trillion in spending….
Why do most government workers work on the “local” level?
Why is most government spending done at the “federal” level?

9. Section 3: Government and Free Enterprise
Market failure – if people who are not part of the marketplace interaction benefit from or pay costs
Public goods – goods and services provided by the government and consumed by the public
Can you name “public goods”???
People cannot be denied use of goods
Use of them by one person does not reduce its usefulness to others

10. Activity Create a list of public goods.
In your group, identify a way in which you could “privatize” this or take it out of government control.
What would be the benefits of privatizing this?
What would be the problems?
Overall, do you think this would be effective?

11. Free rider – someone who chooses not to pay for a good or service, but still benefits
For example: fireworks displays
Private companies do not want to fund this because they won’t profit.
Government can provide with tax dollars
Private organizations can raise funds to pay for it
Infrastructure – goods and services necessary for smooth functioning of society (highways, bridges, sewer, healthcare)

12. Externalities
Side effect of a transaction that affects someone other than producer or buyer
Negative externality – negative effect for people not involved in activity (pollution, traffic, etc)
Positive externality – benefit for people not involved in activity (lower taxes, etc)

13. Subsidy – government payment that helps cover the cost of an economic activity that is considered to be in the public interest (public television, farming, vaccines)
Safety Net – government programs designed to protect people from economic hardships (welfare, Medicaid)
Transfer payments – getting money from another party without having to provide a good or service (birthday)
Public transfer payment – government using tax money to give to other people (social security)

14. Homework
Interview someone who owns business and ask them the following questions:
What made you decide to start your own business?
Why did you choose THIS business?
When did you start?
What steps did you have to take