Warm-up Mixed Economies have elements of both free-market and command market systems. What are some advantages you can see for having government involvement in the free market?

1. Explain the appeal of a Mixed Economy. Econ. Ch 2. sect. 4 Mixed Economies Goals: 1. Explain the appeal of a Mixed Economy. 2. Describe the Circular Model of a Mixed Economy. 3. Compare the mixed economies of different nations along a continuum between free and command economies.

Mixed Economies Traditional Economies have little incentive for growth and innovation. Free Market Economies have low economic equity and low security/predictability. Command Economies have low economic freedom and low quality for G & S. Over time, nations have determined that a market-based economy with some government involvement is the best way to answer the economic questions.

Laissez Faire and its Limits Laissez Faire – (literally “Let them do”) the belief that the government should stay out of the economy and let the market take care of itself. What are some needs/wants that the market would not have the incentive to satisfy? Due To Costs: Due to Fairness: National Defense Education Roads / Highway Systems Healthcare

Limits of Laissez Faire cont. Property Rights and Patents – Without gov’t enforcement and protection of property, people would be concerned about their ideas/inventions being stolen or compromised by large corporations Competition – Without anti-monopoly laws, a laissez faire situation could lead to a few mega-corporations having control of the market. Limited gov’t involvement allows the market to do what it does best (competition and quality) but ensures a fair market, and provides the G & S that otherwise would not be available to the general public

Circular Flow Model of a Mixed Economy Households and Firms are still playing the same roles Now Gov’t is acting in both the factor and product market as well

Circular Flow Model cont. Gov’t in Factor Market: Gov’t employs workers (wages paid to households) Rents/Buys land from households Borrows Capital – Savings Bonds that pay interest to households

Circular Flow Model cont. Gov’t in Product Market: Gov’t purchases G & S from firms and households using tax money i.e. equipment, service contracts, supplies Gov’t provides G & S from firms and households using tax money i.e. roads, public education, military

Mixed Economy Continuum Mixed Economies where Gov’t Dominates North Korea – 95% of industries are state-owned, imports are banned, and foreign companies are forbidden China – 25% of industries are partly owned by individuals, some foreign companies are allowed to operate Mixed Economy where the Market Dominates Hong Kong – government protects private property, but rarely interferes with free market, very open to foreign businesses, Banks are run independent of gov’t.

Adv. & Disadv. of Mixed Economies (same for American Free Enterprise) Advantages Disadvantages Economic Freedom Economic Equity Economic Growth & Innovation Economic Efficiency Economic Security & Predictability Income Inequality Unless the country is socialist

American Free Enterprise Goals: Identify and Describe the constitutional protections of free enterprise Explain the principles behind free enterprise Identify and Analyze the role of the consumer in a free enterprise Describe the role of the government in the American system

Constitutional Protections Property Rights 5 th Amendment- “(no person) 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” 14th Amendment carried it out to the state level. Protects Individuals and Corporations

Constitutional Protections cont. Taxation- Article 1 – power to levy taxes, but sections 2 & 9 = direct taxes according to population (all the same) In 1913- 16th Amendment – gave Congress right to taxes based on income Contracts – Article 1 Section 10- prohibits states and federal gov’t from passing laws that interfere with contracts – no wiggling out with political influence

Principles of Free Enterprise Profit Motive – Incentive provided by the promise of profits and earned $$ Open Opportunity- the ability of anyone to open a business or compete in the market- (licenses, fees might still exist but no illegal barriers)

Economic Rights Legal Equality – all are equal in the eyes of the law Private Property- people have the right to determine the use of their own possessions Free Contract & Voluntary Exchange- no one is forced into doing business or to accept unfavorable contract conditions D. All of the above = Good Healthy Competition

Role of Consumer Consumer Sovereignty- power held by the consumer in a free market- main economic decision maker. Affects Producers- Affects Government-

Role of Government #1 - Information Protecting the People- from misinformation, harmful conditions Negative Effects? – increased costs to producers, sensitive to lowest common denominator

Role of Gov’t #2 – Monitor and Stablize Economy Employment- normal and desirable is 4%-6% Current – WI: 7.8% US: 9.5% (7/10) Growth- Measured by the GDP + or – Stability – Price levels (inflation, CPI) Financial Institutions US GDP = $54,629 World Avg. = $10,721 (2015) +GDP’s = constantly increasing productivity (pp curves)

Role of Gov’t #3 –Innovation & Productivity Work Ethic – commitment to the value of work and responsible , productive activity Technology- New Technology is an increase in Physical capital which leads to increased productivity New products/processes = Obsolete are recycled or repurposed

Role of Gov’t # 3 Research Grants – Land and/or $$ Gov’t Research – NASA Intellectual Property Rights Patent= 20 yrs exclusive rights of production Copyrights= authors have exclusive publishing rights Trademarks=right to a name, specific look or identifying feature