Chapter 3

3.1 Benefits of Free Enterprise Tradition of FE “land of opportunity” Hard work  Success Constitutional Protections Guarantee freedoms…make business easier (a.k.a. more $$) Property Rights Protected (5th Amendment) Gov. can’t take property from ind. Except… eminent domain Taxation Legal and fair ways

3.1 Benefits of Free Enterprise Basic Principles of F.E. Profit Motive Improve well being ($$); SELF-INTEREST YOU are responsible for success/failure Open Opportunity EVERYONE can compete (Rich  poor  rich) Legal Equality Same legal rights for ALL  max. human capital Private Property Rights Make own decisions about possessions/property

3.1 Benefits of Free Enterprise Free Contract Decide on your OWN what agreements you enter Voluntary Exchange Decide what and when they want to buy/sell (not forced at particular time) Competition Decrease cost, increase variety of goods Role of Consumer C.Sov.- production based on their purchases…Interest groups

3.1 Benefits of Free Enterprise Role of Government Public disclosure (laws) require companies to give the public important info about their products Fuel/energy efficient, nutrition facts, Public Interest Cars, food medicine Disposal of materials Zoning laws Standards, sanitary conditions, labels

3.1 Benefits of Free Enterprise Role of the Government (cont.) Negative Effects of Regulation Rules costly, cuts profits, slows growth & prices competition and gov. spending Ex: FDA (food/drug) FCC (financial) FAA (airline) EEOC (employment) EPA (environment) OSHA (safety)

3.2 Promoting Growth and Stability Government goals…. Stabilize business cycles, Promote growth & innovation Tracking Business Cycles Macroeconomics Watch behavior/decision making of entire economies; BIG picture Microeconomics Look at behavior & decision making of small units (ind., families, etc.)

3.2 Promoting Growth and Stability Tracking Business Cycles (cont) Gross Domestic Product (GDP) Total value of all final goods & services produced; used to predict business cycles Business cycle Expansion followed by decline Gov intervenes to prevent wild swings in economic behavior (“high” highs, & “low” lows) Difference b/w day to day and long term

3.2 Promoting Growth and Stability Promoting Economic Strength Unemployment 3% -11% normal Growth Make next generation better increase GDP How do you increase GDP? Technology Able to make more in less time, w/ less material (efficient) Patents and copyrights = incentives! Stability Price levels (don’t want surge or sink) Financial institutions (banks, stock brokers, etc) Federal Regulators investigate fraud and manage interest rates (the “Fed”)

3.3 Providing Public Goods Gov. provides a shared good/resource when it’s impractical or inefficient to … make everyone pay on their own or exclude nonpayers Ex: Nat’l parks, roads, fire, military, police, etc. Public sector: government “Free rider”: won’t pay for goods/services, but still gets the benefits Ex: Army helmets; neighbor won’t pay for fire protection Private sector: individuals & businesses

3.3 Providing Public Goods Market Failure Resources aren’t distributed efficiently by market Ex: Road building Externalities Economic side effect (or consequence) Positive or negative Ex: -Job training, go to new job; fixing up a house Ex:  business dumps waste in river, town must clean **STOP**

3.4 Providing a Safety Net Sometimes US gov steps in to aid poor, disabled & elderly people Poverty Threshold Income level below what’s needed to support a family Now: $ ________________ a year

3.1 Benefits of Free Enterprise Question When is it ok for the government to take a person’s property? What constitutional guarantees underlie the US free enterprise system?

3.1 Benefits of Free Enterprise Question How Free is “free” enterprise when the gov can intervene (so much)? Laws restricting f.e. not meant to penalize, but to protect everyone from economic behavior that is not in the public interest. Make a list of laws that regulate the economy and a statement about how each law protects public interest.

3.2 Promoting Growth and Stability Question Compare macroeconomics with microeconomics Give an example of macro and micro econ What is GDP ? What does it tell economists about business cycles?

3.2 Promoting Growth and Stability Question Give on example of a new technology that has resulted in greater productivity for the US. Describe how economic stability is measured.