The American Free Enterprise System

1. The American Free Enterprise System Chapter 3

2. Section I Advantages of the Free Enterprise System

3. The U.S. is pushed by a Capitalist System • Capitalism-producers are free to produce the goods/services the consumers want • Free Enterprise System • Consumers influenced by their economic wants • Producers influenced by their want for a profit • Money left over after costs have been subtracted Concepts

4. Right to own private property • Fundamental right • Right to exchange property voluntarily • Open opportunity • Freedom to enter and operate in the market place • Wide range of interests and talents • Incentive to become efficient and productive How A Free Enterprise System Works

5. Legal Equality • Economic equality under the law • Everyone has the right to succeed or fail in the market • Free Contract • Voluntary exchange of work people can enter into legal agreements • Freedom allows people to engage in a Free Enterprise System …Continued

6. What motivates people? • Profits • Incentives to encourage improvement of well being; to seek to gain form economic activity • Producers want the highest profits possible • Competition creates the balance between high prices and low profits …Continued

7. Section II How Does Free Enterprise Allocate Resources

8. Consumers are looking for the best deal • Consumers vote on products with their wallets • Producers are looking for the highest profits • Profits: money left over after costs are subtracted Roles of Producers & Consumers

9. The United States has a modified FES • Government protection, provision, regulations, have adjusted the FES • Page 80 • Government becomes a Consumer & Producer • Spends money on factors of production & exchange of products • Produces goods & services • Public resources • Public payment method: TAXES The Government In The U.S. Economy

10. Section III The Government & Free Enterprise

11. Production decisions made by buyer and seller interactions • Government decisions consider “public sector” • If costs & benefits are handled by both buyers & sellers- Free Enterprise • Those who are not apart of the system yet benefits or pays cost- Market Failure Concepts

12. Dealing with Market Failures • Government may provide the good or service • Public goods maybe funded by taxes • Public goods • People cannot be excluded • One person’s use does not reduce usefulness • People must have a willingness to pay • Street Lights • National Defense …Continued

13. People receive benefits whether they pay or not • Free rider- doesn’t pay for a good or service but benefits • Market Failure • Fireworks Display • Law Enforcement • Paid through taxes Free Riders

14. Toll goods-provided by public & private sectors • Goods considered public though one may exclude themselves • Toll Roads- open to all/to use must pay • Parks- open to all/fee to enter • Initial funding from public sector/day-to-day operations held by private sector Public & Private Sectors Shared Responsibilities

15. National Infrastructure • Goods & services that are necessary for function of society • Highways, mass transit, power, water, & sewer services • Essential to National existence …Continued

16. Externality- side effect of a transaction that affects someone other than the producer or buyer • Negative Externality- water pollution by local factory • Positive Externality- your neighbor’s rose garden Managing Externalities

17. Paying for Negative Externalities • Industrial Pollution • Factory owner doesn’t pay to reduce pollution • Neighbors suffer • Pollution related illness • Government intervention • Taxes & Fine …Continued

18. Positive Externalities • New Local College • Local business benefits • Workers benefits • Community benefits through taxes • Local government spends taxes on infrastructure • Skilled workers enter workforce • Subsidy-government payment to help cover costs • Medical research at new college • Public may/may not benefit from research …Continued

19. Safety Net- government program to help economically unproductive or those experiencing economic hardship • 12% of population under poverty line • Most are there temporarily Public Transfer Payments

20. Transfer Payment- transfer of income from one to another, though one may not provide something in return • Monetary birthday gift • Heirs to an estate • Public Transfer Payments- government transfers income from taxpayers to recipients • Found in Command Economies • Addresses social issues • Social Security • Unemployment compensation …Continued