Ch. 3: American Free Enterprise

1. Ch. 3: American Free Enterprise

2. Section 1: Benefits of Free Enterprise

3. Property Rights • Private property is the foundation of American Free Enterprise. • Fifth Amendment: • “no person should be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”

4. Taxation • The Constitution also provides rules for the ways government can tax. • The Sixteenth Amendment (1913) gave Congress the authority to tax income.

5. Principles of Free Enterprise • Profit Motive: profit incentive leads to innovation • Open opportunity: everyone can compete in the market

6. Economic Rights • Legal equality- rule of law allows everyone to participate in the marketplace. • Private property- gives people the freedom to control their own possessions and businesses

7. Economic Rights • Free contract- people can choose what agreements they enter • Voluntary exchange- the choice to buy/sell only if and when and individual wants to.

8. Interest Groups • Consumers can make their collective interests heard by joining private organizations that work at persuading public officials.

9. Consumer Information • Public disclosure laws: require companies to release information about their products.

10. Government Regulation • The government regulates businesses that affect public interest (concerns of the public) • Zoning laws • Environmental regulation • Safety regulation

11. Before Regulation • Gilded Age Industry • The Jungle (FDA) • Working conditions

12. Negative Effects of Regulation • Regulation can impose difficult restrictions on businesses, limiting profits and efficiency.

13. Major Federal Regulatory Agencies • Food and Drug Administration (FDA) • Federal Trade Commission (FTC) • Federal Communications Commission (FCC) • Federal Aviation Administration (FAA) • Equal Employment Opportunity Commission (EEOC) • Environmental Protection Agency (EPA) • Occupational Safety and Health Administration (OSHA) • Consumer Product Safety Commission (CPSC) • Nuclear Regulatory Commission (NRC)

14. Section 2: Promoting Growth and Stability • America’s free enterprise economy seeks to promote both growth and stability; which can be competing priorities.

15. Business Cycles • Macroeconomics: studying entire economies • Microeconomics: studying decision making of small units (individuals, families, businesses)

16. Gross Domestic Product (GDP) • GDP: The total value of all final goods and services produced in an economy. • GDP reflects the level of productivity/wealth of a country.

17. Economic Goals: Employment • Maintaining high levels of employment is a goal of government. • Unemployment rates between 3-6% are desirable.

18. Economic Goals: Growth • Growth of GDP and economic wealth is a goal of the US Economy.

19. Economic Goals: Stability • Stability is demonstrated by consistent prices, employment levels, and strong financial institutions (banks, investments)

20. Productivity • Productivity measures the level of economic output. • Work ethic- commitment to hard work and production

21. Technological Progress • Improvements in technology enhance the economies productivity. • What invention most significantly impacted society? • Printing press, car, train, plane, telephone, television, computer, cell phone, camera?

22. Section 3: Providing Public Goods • Government provides some resources to everyone.

23. Public vs. Private • Public sector: part of the economy that the government operates. • Private sector: part of the economy that individuals and businesses operate.

24. Public Goods • Public goods are shared goods or services. • They exist when its impractical or inefficient… • For consumers to pay individually • To exclude non-payers • Examples: dams, roads, schools, parks

25. What goods should be public? • Is the total benefit to society greater than the cost?

26. Free-Riders • Free-riders are those who would use benefits but are not willing to pay for them. • The free-rider problem suggests that if government stopped collecting taxes, many public services would not exist.

27. Market Failure • Market failure is when a free market will not naturally distribute resources efficiently. • Recall Adam Smith’s invisible hand metaphor • Example of market failure: private roads • Roads would charge expensive tolls due to no competition. • Roads would not be built in less populated areas because of a lack of profit incentive. • Market failure necessitates public goods.

28. Externalities • Externality is an economic side effect of an economic decision. • Positive externality: creates positive side effects • Negative externality: creates negative side effects

29. Section 4: Providing a Safety Net • The government provides “safety nets” for those in need.

30. Poverty Threshold • Poverty threshold is an income level necessary to support families and households. • Poverty threshold/line in the US (15-20% of population)… • Individuals who make less than $12,000 • Family of 4 that makes less than $22,000

31. Poverty in Manhattan • In 2011, a startling report found Manhattan, NYC to have the greatest gap of wealth in the country. • Annual income for… • Top 20%: $371,754 • Bottom 20%: $9,845

32. Thinking about poverty • Poverty can be caused by a number of things… • Historical social injustice • Health problems • Poor education systems • Migration • Poor decisions

33. The Welfare System • Before the 1930s, government did very little to provide for those in need. • Since then, numerous welfare programs (government aid to the poor) have been started.

34. Redistribution Programs • Cash Transfers: • Temporary Assistance for Needy Families (TANF) • Social Security • Unemployment Insurance • Workers’ compensation • Food Stamps

35. Public Healthcare • Medicare- Health insurance for the elderly (65+) and disabled • Medicaid- Health insurance for the low income

36. Education • Government provides public education regardless of income. • Provides additional funds and programs for those in need. • Head Start Program • College grants/loans