American Free Enterprise Chapter 3

Benefits of free Enterprise You have a great idea for a new business, could you put your plan into action? In America you can Every day, American entrepreneurs begin new businesses that can earn profits, create jobs, and offer goods and services.

Look at the constitution Fifth amendment Article I Article I, Section 9 Sixteenth amendment Article I, Section 10

The American free enterprise system makes it possible for people who have ideas and persistence to start businesses and make them successful.

Basic principles of free enterprise United states is the “land of opportunity” Anyone from any background can achieve success The freedom of innovation has contributed to the economic prosperity 22 million unincorporated businesses in America Open land Reserves of natural resources Large, talented labor supply But the key factor has been the American tradition of free enterprise

What is free enterprise The social and political commitment to giving people the freedom and flexibility to try out their business ideas and compete in the marketplace

America Free Enterprise Private Property Economic Freedom Profit Motive Competition Self-Interest Contracts Voluntary Exchange Consumer Sovereignty Legal Equality What is Free Enterprise?

Profit motive Drives individuals and businesses to make decisions that improve their material well- being Business owners and managers make choices themselves based on what will increase their profits Forces business owners to exercise financial discipline because they are responsible for their own success or failure Encourages entrepreneurs to take rational risks, and reward innovation by letting creative companies grow Improves productivity by allowing more efficient companies to make more money

Open opportunity Principle that anyone can compete in the marketplace Different people will have different degrees of success We believe that anyone who wants to start a business should have a chance No matter how much money you start your business with, you can end up wealthier or poorer depending on how your business performs

Legal equality Principle that everyone has the same legal rights This maximizes our human capital

Private property The cornerstone of the free enterprise system Gives people the right to control their possessions and use them as they wish Allows people to make their own decisions about their own property Personal ownership provides and incentive for property owners to use their property wisely and conserve the resources

Freedom to buy and sell The right of free contract allows people to decide what agreement they want to enter into The right of voluntary exchange allows people to decide what, when, and how they want to buy and sell Not forces to buy or sell particular goods at particular times or a specific prices Voluntary exchange encourages competition Competition provides consumers with the choice of a larger variety of goods, most of which are sold at reasonable prices

The role of the consumer Consumers have the freedom to make their own economic choices Through voluntary exchange, consumers tell businesses what to produce and how much to produce The tell businesses when they do not buy goods and services

Economic freedom and the constitution The right to own property To become an entrepreneur Freedom of speech Right to vote

Property rights In many countries the government can seize property for its own use. The fifth amendment states that “ no persona shall be… deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.” The right of the government to take private property for public uses is called eminent domain. Government must pay the person the fair value of the property that has been taken

taxation Congress has the power to tax only in the ways the constitution allows Taxes in each state are based on the number of people living in the state

contracts No legislature can pass a law changing the terms of someone’s business agreement/contract

Role of the government in the marketplace Carry out constitutional responsibilities Protect property rights Contracts Business activities Promote public interest—concerns of society as a whole Pollution Unsafe food and medicine

Information and free enterprise Educated consumers make the free market system work more efficiently Why you are taking this class Governments make sure that producers provide consumers with information Public disclosure laws Energy efficient tags on appliances Terms and conditions Side-effects Federal trade commission act—advertisements cannot be deceptive Truth in lending act—must disclose interest rate

Protecting public health, safety, and well-being Although the government does not get directly involved in running private businesses, it does place some limits on their actions in the public interest Protecting consumers Manufacturing standards Supervises the conditions in which foods are produces Regulates labels on consumer packages Zoning laws

Major federal regulatory agencies FDA FED FTC FDIC FCC SEC STP NLRB FAA EEOC EPA OSHA CPSC NRC 1. Agency and Date Created 2. Role

Negative effects of regulation During the 1960’s and 1970’s popular demand for government protection of consumers and the environment resulted in the creation of several new governmental agencies and regulations Government regulations can have negative effect on both businesses and consumers Cost Cutting profits Slowing growth Stifle competition resulting in unnecessarily high prices Raise government spending