Basic Principles of Free Enterprise

1. Basic Principles of Free Enterprise • Define “Land of Opportunity” • List personal examples of those you know who have started businesses and reasons for doing. • Can you think of any famous examples of individuals taking small ideas and creating an empire?

2. Several key characteristics make up the basic principles of free enterprise. • 1. Profit Motive • The drive for the improvement of material well-being. • 2. Open opportunity • The ability for anyone to compete in the marketplace. • 3. Legal equality • Equal rights to all. • 4. Private property rights • The right to control your possessions as you wish. • 5. Free contract • The right to decide what agreements in which you want to take part. • 6. Voluntary exchange • The right to decide what and when you want to buy and sell a product. • 7. Competition • The rivalry among sellers to attract consumers. The Basic Principles of Free EnterpriseChapter 3 section 1

3. A fundamental purpose of the free enterprise system is to give consumers the freedom to make their own economic choices. Through their economic dealings with producers, consumers make their desires known. When buying products, they indicate to producers what to produce and how much to make. Consumers can also make their desires known by joining interest groups, which are private organizations that try to persuade public officials to vote according to the interests of the groups’ members. The Consumer’s Role

4. The Government’s Role Americans expect the government to protect them from potential problems that arise from the production of various products or the products themselves. • Public Disclosure Laws • Laws that require companies to provide consumers with important information about their products, such as fuel efficiency of automobiles, side-effects of medication. • Public Interest • Both state and federal governments’ involvement in concerns of the public as a whole, such as environmental protection, sanitary food production.

5. How Government Agencies Affect Our Lives • Federal Agencies try to maintain fair prices and the quality of products by establishing regulations. Every day, our lives are influenced by these regulations. • Use page 55 to try to figure which Government agency would regulate each situation in this family’s daily life.

6. How Government Agencies Affect Our Lives • 7:30 am Linda Lee is getting ready for her part-time job. However, the curling iron she is using is not heating properly. She checks to see when the warranty runs out. • 8:00 am Over breakfast, Linda’s father shows the family the newly designed helmet he has to wear at the plant. • 8:30 am Linda’s mother backs her car out of the garage. The automatic garage door closes when she presses the button on the car’s radio transmitter. • 9:30 am Mr. Lee goes to the supermarket to do the food shopping. He checks the labels on several boxes of cereal to compare their nutritional content.

7. Noon At lunch hour Linda goes to an electronics store to buy a new stereo. This store’s ad seemed to give truthful, complete information • 2:00 pm Mr. and Mrs. Lee attend a special meeting at the town hall. The townspeople are attempting to clean up the pollution in a nearby lake. • 4:00 pm Cable TV service has just come to the area. Linda’s younger sister enjoys the children’s programs that the community college produces for the cable company’s “public access” channel. • 7:00 pm Linda’s parents watch a business report on the investigation of investment counselors accused of defrauding their customers.

8. Promoting Growth and StabilitySection 2

9. Tracking Business Cycles • Macroeconomics is the study of the behavior and decision making of entire economies. • A business cycle is a period of a macroeconomic expansion followed by a period of contraction. • One measure of a nation’s macroeconomy is gross domestic product (GDP). GDP is the total value of all final goods and services produced in a particular economy.

10. Promoting Economic Strength Policymakers pursue three main outcomes as they seek to stabilize the economy. Employment • One aim of federal economic policy is to provide jobs for everyone who is able to work. Growth • For each generation of Americans to do better than previous ones, the economy must grow to provide additional goods and services. Stability • Stability gives consumers, producers, and investors confidence in the economy and in our financial institutions, promoting economic freedom and growth.

11. Technology and Productivity America has a far greater G.D.P. than most of the world. High Standard of Living is preserved by increasing productivity: ie.--Shifting the Production Possibilities frontier outward. (To the Right)

12. The government encourages the development of new technologies in several ways. Technology is the process used to produce a good or service. Encouraging Innovation • Federal agencies fund many research and development projects. Also, new technology often evolves out of government research. • A patent gives the inventor of a new product the exclusive right to produce and sell it for 20 years.

13. Providing Public Goods • A public good is a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers. • Funded by the public sector, purchases made by the government through taxpayers’ dollars

14. Your federal, state, and local governments provide many goods and services for your community. What public goods and services are represented by the structures pictured below?

15. Market Failures A market failure is a situation in which the market, on its own, does not distribute resources efficiently. • If the government stopped collecting taxes, a market • economy would fail to provide the incentive to • produce certain goods and services.

16. Externalities • An externality is an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume.

17. Providing a Safety Net The Poverty Problem • Welfare is a general term that includes several redistribution programs of government aid to the poor. • 2010- family of 4 poverty level is $22,050 The poverty threshold is an income level below that which is needed to support families or households.

18. Redistribution Programs Cash transfers are direct payments of money to eligible people. Social Security Social Security provides direct cash transfers of retirement income to the nation’s elderly and living expenses to the disabled. Unemployment Unemployment compensation provides money to eligible workers who have lost their jobs. Workers’ Compensation Workers’ compensation provides a cash transfer of state funds to employees injured while on the job.

19. Other Redistribution Programs • Medical benefits • Health insurance is provided by the government for the elderly and disabled (Medicare) and for poor people who are unemployed or are not covered by their employer’s insurance (Medicaid). • Education benefits • Federal, state, and local governments all provide educational opportunities for the poor.

20. Business and Government • The government plays an important role in regulating business and industry. However, businesses also influence government. For example, lobbyists impress their ideas on our elected representatives. Businesses also contribute money to the election campaigns of people who agree with their ideas. And government is usually very sensitive to the needs of business, for if businesses are hurt, their employees are also hurt.

21. Assume you own a factory that makes children’s clothes for both the U.S. and export. Would you support or not support each proposal and why? • 1. Stricter pollution controls on electric generating stations. • 2. Higher standards of quality for clothing. • 3. A tax on imported clothing that will raise its price by 15%. • 4. Government support for day care for single parents with children. • 5. An import tax on inexpensive foreign fabrics, raising the price 20%. • 6. Deregulation of the trucking industry designed to increase competition among firms that transport manufactured goods. • 7. An increase in the business tax to help reduce the federal budget deficit.