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Economics Next Chapter 3 Copyright © by Houghton Mifflin Harcourt Publishing Company The American Free Enterprise System.

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Presentation on theme: "Economics Next Chapter 3 Copyright © by Houghton Mifflin Harcourt Publishing Company The American Free Enterprise System."— Presentation transcript:

1 Economics Next Chapter 3 Copyright © by Houghton Mifflin Harcourt Publishing Company The American Free Enterprise System

2 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 KEY CONCEPT Free enterprise system is another name for capitalism. This name is used because anyone is free to start a business or enterprise. Chapter 3: The American Free Enterprise System WHY THE CONCEPT MATTERS Free enterprise affects your day-to-day life. It is all around you, from huge suburban shopping malls to industrial developments to office buildings to neighborhood corner stores. Where you work, where you shop, and what you buy are all influenced by the free enterprise system.

3 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Section-1 KEY CONCEPTS Capitalist system also known as free enterprise system anyone is free to start a business or enterprise private ownership of factors of production Advantages of the Free Enterprise System What is a Free Enterprise System?

4 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 EXAMPLE: United States Businesspeople free to start business, choose how to use resources Managers and workers choose where to exchange labor for pay Consumers choose which goods and services to buy Zalia Cosmetics2001 startup aimed at underserved Latina market Government protects or encourages competition, enforces contracts What is a Free Enterprise System?

5 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Emerging Markets Most countriesown mix of tradition, free enterprise, government involvement Mexican government regulations make starting a business difficult street vendors get around rules; have driven out some retail stores Singapore government keeps business costs low but is very involved requires employers pay benefits; workers pay into national fund What is a Free Enterprise System?

6 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 KEY CONCEPTS System gives right to own and exchange private property voluntarily Open opportunityability to enter, compete in market of ones choice Legal equalityeveryone has same economic rights under the law Free contractright to decide which legal agreements to enter into Profit motiveincentive to gain from economic activities What is a Free Enterprise System?

7 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 EXAMPLE: Profit in Rocks 1975 pet rock fad; packaged with care manual highly popular and profitable gag gift during holiday season In early 1976, consumers stopped buying owner quit the business How a Free Enterprise System Works

8 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 EXAMPLE: Competition over Books Demand for books high; competition driving out small booksellers Before 1995, small chain stores and independents dominant 1995, large chains offered discounted prices, appealing atmosphere 1995, online booksellers open with huge number of titles, low prices small stores now offer personal service, local or specialized topics How a Free Enterprise System Works

9 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Free to Choose Professorthinks market should be free to operate in all fields Thinks governments key role is to control money supply, thus inflation Served as advisor to two U.S. presidents, foreign heads of state Won 1976 Nobel Prize for Economics Recent years, scholar, has foundation promoting educational freedom Milton Friedman: Promoter of Free Markets

10 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Explain the differences among the following terms: open opportunity legal equality free contract Reviewing Key Concepts

11 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Section-2 KEY CONCEPTS Consumers try to get the best deal for their money Producers try to earn the most profits Profitmoney left after production costs subtracted from sale price How Does Free Enterprise Allocate Resources? The Roles of Producers and Consumers

12 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 EXAMPLE: Producers Seek Profit Neighborhood coffee shop shows how producers help allocate resources to earn profits, charge highest price consumers will pay profits encourage others to open similar businesses result: productive resources directed toward coffee shops The Roles of Producers and Consumers

13 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 EXAMPLE: Consumers Vote with Their Wallets Consumers help allocate resources through their choice of products their choices guide producers to provide what consumers will buy Early 2000s, low-carbohydrate diets became popular food producers moved some resources into low-carb market In 2004, producers cut back when consumer interest faded The Roles of Producers and Consumers

14 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 KEY CONCEPTS Government important but with limited role in U.S. economy Modified free enterprise economy: government protections, provisions, regulations adjust capitalism Government in the U.S. Economy

15 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Modified Free Enterprise Like businesses and households, government is producer and consumer as consumer, buys factors of production in resource market as consumer, buys products in product market as producer, provides goods and services to businesses, households collects taxes in payment, uses these to pay for resources, products Government in the U.S. Economy

16 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Answer the following question: Why is the U.S. economy sometimes referred to as a modified free enterprise system? Reviewing Key Concepts

17 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Section-3 KEY CONCEPTS Public sectorbranches of government that make production decisions Market failureoutsiders benefit from or pay for marketplace interaction Public goodsproducts provided by government, consumed by public Public goods funded with taxes Government and Free Enterprise Providing Public Goods

18 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 EXAMPLE: Characteristics of Public Goods Two characteristics of public goods people who do not pay cannot be excluded one persons use does not make product less useful to others Street lighting, national defense examples of public goods impossible to determine price or benefit per user Providing Public Goods

19 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 EXAMPLE: Free Riders No incentive for business to produce public goodspeople will not pay Free riderperson who benefits but does not pay for good or service Only way to have public goods is for government to fund with taxes examples: July 4 fireworks, law enforcement Providing Public Goods

20 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Public and Private SectorsShared Responsibilities Some goods provided by either public or private sector toll goodsconsumed by public but people can be excluded often initial funding public, daily operations private Infrastructuregoods and services needed for society to function examples: highways, mass transit, water, sewer, health care, fire Providing Public Goods

21 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 KEY CONCEPTS Market failure occurs when economic transactions cause externalities Externalityside effect on someone other than producer or buyer negative externalitypeople uninvolved in the transaction pay costs positive externality benefits people uninvolved in transaction Managing Externalities

22 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 EXAMPLE: Paying for Negative Externalities Factory ownerslittle incentive to pay to cut industrial pollution People of region pay cleanup cost, have illnesses and medical bills Government limits negative externalities through taxes and fines offset medical costs, provide incentives to reduce pollution Managing Externalities

23 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 EXAMPLE: Spreading Positive Externalities A new college benefits local businesses, community as whole Government tries to increase positive externalities Subsidygovernment payment to help cover cost of economic activity subsidy to drug company to make flu vaccine yields fewer sick people Managing Externalities

24 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 KEY CONCEPTS A limitation of free enterprise: people unable to contribute cannot access all economic opportunities Safety netgovernment programs designed to protect people from economic hardship Public Transfer Payments

25 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Redistributing Income Transfer payments move income from person or group to another recipient does not provide product in return Public transfer paymentmade by government with tax money Most public transfer payments in area of social spending usually go to poor, aged, disabled, or people who lose their jobs Public Transfer Payments

26 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Explain the relationship between the terms in each of these pairs: market failure and free rider negative externality and positive externality subsidy and positive externality safety net and public transfer payment Reviewing Key Concepts

27 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Background The free enterprise system and the belief that everyone has the right to pursue economic success is the backbone of American society Although many people achieve success by working for an employer, an increasing number are working for themselves Case Study: The United States: Land of Entrepreneurs Whats the Issue What are some of the options for opening your own business?

28 Copyright © by Houghton Mifflin Harcourt Publishing Company Next Previous Economics Chapter 3 Case Study: The United States: Land of Entrepreneurs {continued} Thinking Economically 1.How do the legal rights built into the free enterprise system affect the businesses in A and C? 2.Which of these two businesses do you feel would provide more stability for its owner? Why? 3.Do you think entrepreneurs make up a large percentage of the work force? Why are entrepreneurs important to the economy?

29 Copyright © by Houghton Mifflin Harcourt Publishing Company Previous Economics Chapter 3 Print Slide Show 1.On the File menu, select Print 2.In the pop-up menu, select Microsoft PowerPoint If the dialog box does not include this pop-up, continue to step 4 3.In the Print what box, choose the presentation format you want to print: slides, notes, handouts, or outline 4.Click the Print button to print the PowerPoint presentation


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