1. American Free Enterprise
Chapter 3

2. What are the benefits of a free enterprise society?
Essential Question
What are the benefits of a free enterprise society?

3. Essential Question
Think of a product that you use that was developed or modified as a result of some change in the marketplace.
Would this product have been developed in a command economy? Why or why not?
How does this product demonstrate a strength of the free enterprise system?

4. Guiding Question
How does the American economy incorporate the main characteristics of a free enterprise economy?

5. I. Advantages of Free Enterprise System
U.S. is a capitalist economic system
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.

6. How Free Enterprise Works
Free Enterprise is just another name for capitalism
You are free to start a business that provides usefulness to consumers
Business is free to use scarce resources as they please
Managers and workers operate these businesses in exchange for pay

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

8. What are the weak points of the free enterprise economy?
Guiding Question
What are the weak points of the free enterprise economy?

9. Limits of Free Enterprise
Gov’t only limits free enterprise in small ways ex. Can’t take advantage of consumers with unsafe products
Some emerging nations using free enterprise set more limits
Ex. Make companies offer the same benefits

10. Five Freedoms of Free Enterprise
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.
This creates a wide range of goods and services to choose from. Forces all business to be productive and efficient.

11. 3. Legal Equality- Everyone in the economy is protected by same economic rights under law. Everyone has the right to succeed or fail.
4. Free Contract- People choose which agreements to enter into in the market place ex. Buying a house and agreeing to pay a mortgage

12. 5. Profit Motive- force that encourages people to improve their wealth through economic activity
Ex. You decide to open a Sheetz on Route 30 to become wealthier

13. Competition in Free Enterprise
Drives prices down to offset people true ambitions to make as much money as they can
It creates reasonable prices for the consumer, but still leads to profit
Ex. Gas Station Wars

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

15. By trying to earn profit producers help to allocate 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

16. Ex. Seeking Profit Convenience Stores
They charge a reasonable yet higher price on their products
By convenience store A making profit, it will motivate Timmy to open his own store
People allocate resources to places they know they will make money

17. Resources are now being allocated (set aside) for convenience stores instead of another area
This creates competition and variety in the economy

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

19. Ex. Popularity of Energy Drinks
Ten years ago they were not in demand
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.

21. Questions
What other trends have taken place in society where a new product causes companies to reallocate their resources into a new product?
How does a free enterprise system keep their from being to many conveniences stores in a market?

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

23. Federal, State, and Local Gov’t takes tax dollars from individuals, businesses, and provides services ex. Military, Social Security, Prints Money, Maintains Roads
Product and Factor Markets provide resources for gov’t to use to operate
Ex. Gov’t workers, computers, land
Federal gov’t employs less workers, but spends way more $ to operate

24. 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

25. Public and Free Enterprise Sector
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.

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

27. Example
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

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

29. Taxes
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
It would be impossible to charge individually for all of these public services

30. Gov’t collects taxes to prevent free riders from taking advantage of public goods and services without paying
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

31. Example of Free Riders
Living on a hippie commune

32. Public and Private Sectors Share Responsibilities
Private Sector- Businesses looking to make profit ex. Pat’s Market
Public Sector- gov’t goods and services
Ex. Paying a toll on the turnpike
Highway is built with some federal and state money
The rest of the highway we pay for in tolls

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

34. Managing Externalities
Externality- side effect that affects someone other than buyer or seller
Negative Externality- imposes costs on people who were not involved
Ex. First Energy and the Black Rain in Shippingport

35. Positive Externality
This creates benefits for people who were not involved with economic activity
Ex. I build a tire factory in Hookstown. It will create jobs, bring in other businesses, and increase home values
Gov’t works to increase these positive externalities

36. Gov’t Subsidies
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
What would be another example of a community benefit through subsidy money?

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

38. Poverty in America
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

39. Transfer Payments
Gov’t works to create jobs and helps through transfer payments- Transfer of income from one person or group to another even though the payer receives nothing in return

40. Private and Public Transfer Payments
Private Transfer Payments- this could be help from a family, friend, or charity
Public Transfer Payment- comes from the gov’t using tax dollars that you don’t have to pay back.
Ex. Welfare, Social Security, Unemployment