American Free Enterprise System Chapter 2 Section 3 Mr. Lindquist

Modern Systems All modern systems are “MIXED” or “BLENDED” Why? Because all “Pure” systems have major flaws that need adjusting. Government must play a role. PURE COMMUNISM only exists in isolated pockets of the world

Difference between Mixed Capitalism and Socialism Government regulates and subsidizes People own the industry. Taxes = lower % EXAMPLES: 1. Energy 2. Transportation Socialism: Government ownership of industry to provides NEEDS Taxes = Higher % Allows free market to exist, BUT the government uses taxation to redistribute wealth and provide more services (EQUITY)

Profit Motive Keep the MONEY YOU EARN $$$$$$$$$$$$$$$$ BENEFITS: Efficiency / Innovation / Creativity / Productivity

Competition OPEN OPPORTUNITY BENEFITS: ALLOWS ECONOMIC MOBILITY

Private Enterprise (ENTREPRENEURSHIP) LEGAL EQUITY  anyone can go into business for a profit GOV’T does NOT own things WE DO!!!! BENEFITS: Encourages “productive potential” to be reached.

Private Property People own property / Government MUST Compensate you if taken away What happens when Private Property is GONE? Tragedy of the Commons BENEFITS: Provides incentive for wise use of resources Do you want to waste your natural resources (land)?

Consumer Sovereignty Voluntary Exchange: Buyers and Sellers work freely in the market Ultimately the consumers decide what is produced. BENEFITS: Encourage competition and market variety

Government’s Role? Assure that ALL 5 basic Principles (Pillars) remain in tact. Protector, Regulator, and Consumer (Provider) whenever the benefits outweigh the costs. PROTECTOR: Laws to protect consumers, businesses, workers, etc. PROVIDER: Goods/Services like defense, roads, education REGULATOR: Preserving Competition (Break-up monopolies

What is this picture a metaphor of? Why this picture?

Government’s Role in promoting the Economic Goals Employment: Helping to create jobs and reduce unemployment Growth: Increase the GDP by providing more goods/services Stability: Control economy to make it as predictable as possible. *Limit Recessions *Reduce too much inflation Security: Protection against economic risks beyond our control Equity: Equal access to jobs/goods/services Freedom: Help Markets to operate properly

EXAMPLES: WHICH GOAL IS OUR GOVERNMENT TRYING TO ACHIEVE? ANTI-TRUST LAWS Affirmative Action Price Regulations Government Contracts (government buying things) Unemployment Benefits Food and Drug Administration (FDA) Federal Reserve System (Banking/Money supply)