1. Capitalism and Free Enterprise

2. What is capitalism? The United States’economic system in which private citizens own & use the factors of production to make a profit. The United States’economic system in which private citizens own & use the factors of production to make a profit.

3. What is free enterprise? (another name to explain the U.S. economy) (another name to explain the U.S. economy) Competition is allowed w/ minimum govt. interference Competition is allowed w/ minimum govt. interference

4. Several unique features of capitalism combine to contribute to its success in the U.S. and in other countries. These features are the These features are the use of markets, use of markets, economic freedom, economic freedom, private property rights, private property rights, competition, competition, profit motive, profit motive, and voluntary exchange. and voluntary exchange.

5. Markets

6. What two things do markets do? Prices are set Prices are set Goods are exchanged Goods are exchanged Types of markets Types of markets Local Local Regional Regional National National global global

7. When you go to work, your labor is being sold in the factor market. your labor is being sold in the factor market. When you go shopping, the goods & services you buy are being purchased in the product market. the goods & services you buy are being purchased in the product market.

8. Under our economic system, why is the consumer important? b/c businesses usually try to produce the products that consumers want the most b/c businesses usually try to produce the products that consumers want the most

9. Explain what consumer sovereignty means. That the consumer is the “king” or “ruler” of the market b/c the consumer is basically determining what kinds of products are being made. That the consumer is the “king” or “ruler” of the market b/c the consumer is basically determining what kinds of products are being made. Example: If nobody buys a particular product, would the producer continue to sell it? No! Example: If nobody buys a particular product, would the producer continue to sell it? No!

10. Economic Freedom

11. In the United States, we place a high value on the freedom to own and make our own economic decisions! the freedom to own and make our own economic decisions! Choice of job Choice of job Choice of when/where we’d like to work Choice of when/where we’d like to work In some countries, the govt. makes these decisions!  In some countries, the govt. makes these decisions! 

12. In our type of economy, consumers have the right to choose the products we buy. AND businesses have the right to choose the types of products they will offer to sale.

13. Private Property Rights

14. Explain our private property rights (another feature of capitalism). We have the right to own, use, or dispose of our own property as long as it doesn’t interfere w/ the rights of others. We have the right to own, use, or dispose of our own property as long as it doesn’t interfere w/ the rights of others.

15. Why are our private property rights an incentive? It gives us the incentive to work, save, and invest because we know we can keep any gains/profits that we might earn!! It gives us the incentive to work, save, and invest because we know we can keep any gains/profits that we might earn!! $$$$$$ $$$$$$

16. Competition

17. What is competition? The struggle b/t buyers & sellers to get the best products at the lowest prices. The struggle b/t buyers & sellers to get the best products at the lowest prices.

18. Competition rewards the most efficient producers b/c more ppl. buy their products. Competition forces the least efficient producers out of business if they are unable to compete w/ other products

19. Competition results in Efficient productivity (more goods are sold) Efficient productivity (more goods are sold) High quality products High quality products Satisfied customers Satisfied customers

20. The Profit Motive

21. Why do people take the risks of opening a business? The hopes of making a profit! The hopes of making a profit!

22. What is profit? The amount of money left after all fixed & variable costs have been paid. The amount of money left after all fixed & variable costs have been paid.

23. Voluntary Exchange

24. What is voluntary exchange? The act of buyers & sellers freely and willingly engaging in market transactions. The act of buyers & sellers freely and willingly engaging in market transactions. The buyer benefits b/c they get the product. The buyer benefits b/c they get the product. The seller benefits b/c they get the money. The seller benefits b/c they get the money.

25. The History of Capitalism

26. In Adam Smith’s Wealth of Nations, he believed that if individuals were left on their own, they would work for their own self-interest; as a result, they’d be guided by an “invisible hand” to use resources efficiently.

27. Smith also believed in “laissez-faire” economics. What does that French term mean? “to let alone” What was the govt.’s role in “laissez- faire” economics? not to interfere in the marketplace!! not to interfere in the marketplace!! only create/allow competition only create/allow competition