Characteristics of the U.S. Economy

Limited Role of Government British economist Adam Smith wrote “Wealth of Nations”- 1776 Said when left on their own, people would work for their own self-interests, using resources efficiently and would achieve the maximum good for society. Capitalism, or “laissez-faire”- system where gov’t lets the people make their own economic decisions without gov’t intervention.

Capitalism Capitalism, or “laissez-faire”- system where gov’t lets the people make their own economic decisions without gov’t intervention. Capitalism in U.S.- “system where private individuals own the factors of production, but decide how to use them within legislated limits.

Early Gov’t Involvement Founding Fathers saw gov mostly in defense and keeping the peace. Since 1880s, role of gov has grown greatly. Ex: gov regulates quality of foods, drugs, money, banking system, safety of workplace, environmental issues, education. Provides health care to elderly, social security, etc

Freedom of Enterprise U.S. economy is a free enterprise system. Individuals own factors of production, businesses. Risk success or failure. Gov’t restricts free enterprise. (Can’t set up mechanic shop in back yard. Zoning regulations, child labor laws, hazardous waste laws, etc. protect you and neighbors.

Freedom of Choice Buyers, not sellers, decide what’s produced. If consumers don’t buy a product, it won’t continue to be produced. In industries dominated by a few companies, like public utilities selling electricity, gov’t restricts prices they may charge.

Profit Incentive Individuals invest capital resources with hopes of making profit. Profit- money left over after you pay wages, rent, interest, taxes, etc. Profit incentive (profit motive)- desire to make profit.

Profit Incentive Individuals risk failure. When business fails, it’s a signal to move resources elsewhere. So the interaction of profits and losses leads to an economy more efficient, changeable, and continuously growing.

Private Property Property that’s held by individuals or groups, not gov’t. (land, business, car, etc.) You control how, when, by whom your property is used. Right to invest, own productive assets, enjoy benefits of profit

Guaranteed by the Constitution No level of gov’t can take property without paying for it first.

Competition Desire for profit encourages competition between similar businesses to win customers. Many sellers keep prices down, quality high.