1. American Free Enterprise Chapter 19 Section 3

2. Section 1- Advantages of Free Enterprise System U.S. is a capitalist economic system U.S. is a capitalist economic system This is all based on private ownership of the four factors of production This is all based on private ownership of the four factors of production Consumers are free to choose what they buy, producers are free to make what they like, and make as much profit as possible. Consumers are free to choose what they buy, producers are free to make what they like, and make as much profit as possible.

3. How Free Enterprise Works Free Enterprise is just another name for capitalism Free Enterprise is just another name for capitalism You are free to start a business that provides goods & services consumer want to buy You are free to start a business that provides goods & services consumer want to buy Business is free to use scarce resources as they please Business is free to use scarce resources as they please Managers and workers operate these businesses in exchange for pay Managers and workers operate these businesses in exchange for pay

4. Consumers decide what they want to buy Consumers decide what they want to buy They look for goods and services to fulfill wants for the best possible value They look for goods and services to fulfill wants for the best possible value

5. 5 Characteristics of a Market Economy from the “Chickenomics” video 1. Private ownership of resources Ex. Chicken owns his costume and comedy routine 2. Self-interest motive Ex. The chicken found he could make a living by entertaining crowds at sporting events.

6. 3. Consumer sovereignty =Consumer is KING! Ex. Chicken lost his job as a radio dj because he did not play the music listeners wanted to hear. 4. Markets: where transactions take place 5. Competition Ex. When the chicken sold chicken dolls, his success attracted competition. Someone else began to sell the new improved chicken doll.

7. Limits of Free Enterprise Gov’t only limits free enterprise in small ways ex. Can’t take advantage of consumers with unsafe products Gov’t only limits free enterprise in small ways ex. Can’t take advantage of consumers with unsafe products Recent Toyota Recall Due to Bad Brakes

8. 3 Basic Freedoms of Free Enterprise 1. Right to Private Property- ability to own your own land, thoughts, and material items. 1. Right to Private Property- ability to own your own land, thoughts, and material items. 2. Open Opportunity- Anyone can take part in the market by free choice. Ex. No one can tell you that you can’t open a deli. 2. Open Opportunity- Anyone can take part in the market by free choice. Ex. No one can tell you that you can’t open a deli. This creates a wide range of goods and services to choose from. Forces all business to be productive and efficient. This creates a wide range of goods and services to choose from. Forces all business to be productive and efficient.

9. 3. Profit Motive- force that encourages people to improve their wealth through economic activity 3. Profit Motive- force that encourages people to improve their wealth through economic activity Ex. Scott decides to open a convenience store on Hwy 701 to make money Ex. Scott decides to open a convenience store on Hwy 701 to make money

10. Competition in Free Enterprise Competition is the struggle between buyers & sellers to get the best products at the lowest prices. Competition is the struggle between buyers & sellers to get the best products at the lowest prices. It creates reasonable prices for the consumer, but still leads to profit It creates reasonable prices for the consumer, but still leads to profit Ex. Gas Station Wars Ex. Gas Station Wars

11. Adam Smith “Father of Economics” 1776 Adam Smith a Scottish economist described the basic principles of a market economy (free enterprise system) in his book Wealth of Nations 1776 Adam Smith a Scottish economist described the basic principles of a market economy (free enterprise system) in his book Wealth of Nations He wrote that individuals left on their own would work for their own self-interest. He wrote that individuals left on their own would work for their own self-interest. In doing so, they would be guided by an “invisible hand” to use resources efficiently In doing so, they would be guided by an “invisible hand” to use resources efficiently

12. Laissez-faire economics From the Adam Smith we get the idea of ‘laissez-faire economics” From the Adam Smith we get the idea of ‘laissez-faire economics” Laissez-faire-a french term- Laissez-faire-a french term- means “to let it alone” or means “to let it alone” or“hands-off” According to laissez-faire According to laissez-faire economics the govt. should not interfere in the marketplace.

13. Section 2- How Does Free Enterprise Allocate Resources? Consumers (buyers) are looking to get the best value of a good or service for their buck Consumers (buyers) are looking to get the best value of a good or service for their buck Producers (sellers) as looking to make as much profit as possible Producers (sellers) as looking to make as much profit as possible Profit- Money left over after paying for production costs Revenue-Bills=Profit Profit- Money left over after paying for production costs Revenue-Bills=Profit Revenue- Money made from selling a good or service Revenue- Money made from selling a good or service

14. By trying to earn profit producers help to allocate resources Allocate- to set aside or locate scarce resources Allocate- to set aside or locate scarce resources We allocate our money or set it aside to fulfill wants that we feel are most important. Gas, Bills, Food We allocate our money or set it aside to fulfill wants that we feel are most important. Gas, Bills, Food

15. Ex. Seeking Profit Convenience Stores Convenience Stores They charge a reasonable yet higher price on their products They charge a reasonable yet higher price on their products Making a profit, will motivate Scott to open his own store Making a profit, will motivate Scott to open his own store People allocate resources to places they know they will make money People allocate resources to places they know they will make money

16. Consumers Also Allocate Resources When you buy a product you are choosing it over another When you buy a product you are choosing it over another This helps to influence what producers will make and provide This helps to influence what producers will make and provide

17. Ex. Popularity of Energy Drinks Ten years ago they were not in demand Ten years ago they were not in demand Now even the largest soft drink companies are making them due to popularity Now even the largest soft drink companies are making them due to popularity Coke and Pepsi allocated their resources and put more money into making energy drinks. Coke and Pepsi allocated their resources and put more money into making energy drinks.

19. Role of Gov’t In Our Economy Our Gov’t plays a limited role in regulating our economy Our Gov’t plays a limited role in regulating our economy We call this modified free enterprise We call this modified free enterprise Refer to Circular Flow Model of Gov’t Interaction in economy Refer to Circular Flow Model of Gov’t Interaction in economy

20. Section 3- Gov’t and Free Enterprise Economic Decisions are made by buyers and sellers, this is called the free enterprise sector of the economy Economic Decisions are made by buyers and sellers, this is called the free enterprise sector of the economy

21. Public and Free Enterprise Sector Public Sector- delivery and services by and for the gov’t ex. Military, Social Security Public Sector- delivery and services by and for the gov’t ex. Military, Social Security Free Enterprise Sector- makes a good or a service if all costs and benefits go to the buyer and seller ex. Ford Motor Co. Free Enterprise Sector- makes a good or a service if all costs and benefits go to the buyer and seller ex. Ford Motor Co.

22. All of the goods and services provided by the gov’t in public sector are funded by taxes All of the goods and services provided by the gov’t in public sector are funded by taxes Ex. Street lighting system Ex. Street lighting system These public goods can’t be taken away even though you don’t pay directly for them. These public goods can’t be taken away even though you don’t pay directly for them.

23. Example You do not pay a usage fee for street lights every time they come on. Yet, everyone is able to benefit from them. You do not pay a usage fee for street lights every time they come on. Yet, everyone is able to benefit from them. Your tax dollars pay for the lights Your tax dollars pay for the lights

24. Public Sector Example Military Military Everyone benefits from protection Everyone benefits from protection Your protection does not take away from others protection Your protection does not take away from others protection

25. Taxes They are used to ensure that one person does not pay for military services or other public goods. They are used to ensure that one person does not pay for military services or other public goods. They are used to make sure all people contribute towards public goods in some way They are used to make sure all people contribute towards public goods in some way It would be impossible to charge individually for all of these public services It would be impossible to charge individually for all of these public services

26. Gov’t collects taxes to prevent free riders from taking advantage of public goods and services without paying Gov’t collects taxes to prevent free riders from taking advantage of public goods and services without paying Ex. Fireworks Display, Ex. Fireworks Display, It would be impossible to charge everyone who could see them to pay for them. So city takes the money out of tax dollars It would be impossible to charge everyone who could see them to pay for them. So city takes the money out of tax dollars

27. Most infrastructure, mass transit, highways, water and sewer, is funded by both the private sector- citizens and the public sector- gov’t Most infrastructure, mass transit, highways, water and sewer, is funded by both the private sector- citizens and the public sector- gov’t

28. Positive Externality Externality- side effect that Externality- side effect that affects someone other than affects someone other than buyer or seller buyer or seller Ex. I build a tire factory in Tarheel. It will create jobs, bring in other businesses, and increase home values Ex. I build a tire factory in Tarheel. It will create jobs, bring in other businesses, and increase home values

29. Gov’t Subsidies Gov’t provides money to help cover the cost of an economic activity that may help lots of people. Gov’t provides money to help cover the cost of an economic activity that may help lots of people. Ex. Gov’t provides subsidies to open a free health clinic. It would benefit a whole community Ex. Gov’t provides subsidies to open a free health clinic. It would benefit a whole community What would be another example of a community benefit through subsidy money? What would be another example of a community benefit through subsidy money?

30. Public Transfer Payments Gov’t also helps the sick, elderly, and poor in tough times Gov’t also helps the sick, elderly, and poor in tough times Gov’t provides safety net programs to protect people from economic hardship Gov’t provides safety net programs to protect people from economic hardship Ex. Welfare, Social Security, Grants Ex. Welfare, Social Security, Grants

31. Poverty in America A family of four making less than $20,000 a year live below poverty level 12% of U.S. pop A family of four making less than $20,000 a year live below poverty level 12% of U.S. pop Some families are poor for along time, but most move in and out of poverty over the years Some families are poor for along time, but most move in and out of poverty over the years