The Private Enterprise System People Power

Economic Systems Every society develops a system for making decisions about how it will use its resources to meet the needs and wants of its people.

Economic Systems Each economic must answer 3 basics questions.

3 Basic Economic Questions What goods and services will be produced? How will these goods and services be produced? How will these goods and services be distributed to consumers?

Types of Economic Systems Command Market Traditional Mixed

Market Economy AKA - Private Enterprise System Individual and groups own or control the economic resources used to produce goods and provide services.

Economic Resources Human Resources Natural Resources Capital Goods

Discussion #1 Name a good/service and identify some of the human or natural resources or capital goods needed to produce or provide it.

History Throughout the history of the United States, private enterprise has enabled the nation to produce more goods and services than any other country.

Characteristics of a Private Enterprise System Freedom in the marketplace Private Property Limited government control Competition The Profit Motive

Freedom in the Marketplace Marketplace is any place where buying or selling of goods and services occur Market decides what, how, and for whom to produce Markets are self-regulating and self-controlled

Businesses are free to choose What they wish to produce Which resources to produce What techniques of production to use How their goods and services will be marketed What price to charge When to close down or go out of business

Freedom in the Marketplace Consumers may purchase anything that can be legally sold as long as they can pay. Each consumer casts a economic vote.

Economic Vote Enable consumers to control what will be produced. If consumers don’t buy a product, the producers must Change it Replace it Go out of business

Consumer Responibilities The Consumer has the responsibility to be well informed and to make educated choices in the marketplace so that producers will continue to make good products at fair prices.

Discussion #3 Identify examples of products that did not fare well in the marketplace.

Private Property Anything of value that people own is considered private property. Business Property Personal Property Forms Land, Furniture, Buildings, Resources, Jewelry, Money, Equipment, Clothing, Stocks

Private Property Ownership of private property includes ownership of the results of your work Farmers’ own the crops they raise Workers’ own the wages they earn Businesses’ own goods and services they produce Individuals’ own profit that comes from the sale of private property

Private Property Individuals and businesses in a private enterprise economy are free to decide How to use their private property When and how to sell it

Private Property Owners Enter freely into contracts involving their private property Stop others form using their private property Abuse their private property as long as they are not stepping on the rights of others Control their private property in any way they choose Use their private property to make income Keep any income earned by renting, leasing, or selling their private property

Limited Government Control United States system is not a pure private enterprise because there is a limited amount of government control. US system is mixed – individuals and businesses are the primary economic decision makers, while government helps to regulate and control the system. In the US, the government steps in only to protect citizens; otherwise it lets them pursue their goals.

Limited Government Contol Government is like a referee, ensuring that individuals play according to the rules.

Limited Government Control Government has expanded Inflation Pollution Unemployment

Competition There are many different ways to produce a good or provide a service. Example - Books can be Printed on paper Using various fonts Bound with hard or soft covers Sold at high, medium and low prices

Competition Since there are so many different ways to produce products, the company that finds the most efficient way is the one that will be able to compete successfully.

Competition Rivalry between two or more businesses to attract scarce customer dollars

Competition Other ways to compete Give better credit options Improve your goods and services Creating new goods and services Providing better service than their competitors

Discussion #6 Name examples of competing business in the US Private Enterprise system.

The Profit Motive Profit is the monetary reward business owners receive in return for taking the risk involved in starting a business. The desire to make a profit forms the economic basis for the private enterprise system.

The Profit Motive If a business did not make a profit, it would cease to exist. The freedom to use your private property to make a profit is as important as the freedom to own property in the first place. Profit serves as a motive for starting a business and a goal toward which the individual or business can work.

The Profit Motive Individuals and businesses in private enterprise can keep any profit they earn or they can use it in any way they wish. For this reason, many people consider making a profit the greatest motivating factor in the private enterprise system.

Discussion #7 Do you agree or disagree that the profit motive is the most important factor in the private enterprise system. Why or why not?

The Price-Directed System Price determines What consumers buy Which jobs they will take The success or failure of businesses The types of products that will be produced

The Price-Directed System Prices are important in making the system work correctly. Supply and demand work together to determine prices in the private enterprise system. Consumers indicate demand by the prices they are willing to pay

Disadvantages of the U.S. Private Enterprise System There are times when production drops because sales are low. Companies may lay off workers or even go out of business. This results in periods of unemployment. Poverty has not been eliminated

Disadvantages of the U.S. Private Enterprise System Property and income are not distributed equally in the private enterprise system. Some people own a great deal of property, while other own little or none. This unequal distribution of income exists because workers with higher levels of education, training, skills, and efficiency generally receive higher salaries than less qualified workers.

Discussion #8 Can you think of other disadvantages to the private enterprise system?

Private Enterprise Private Enterprise is based on the idea that everyone is better served when individuals are free to set their own goals.

Private Enterprise When people are free to make personal economic choices and to set economic goals for themselves, they work harder to achieve those goals. This benefits them, and because it increases production, it benefits the economic system as a whole.

Private Enterprise Economic freedom does not guarantee success to individuals or to businesses, but it does provide the opportunity for success. There are few countries that offer as much economic freedom as US citizens enjoy under its private enterprise system.

Economic Freedoms Freedom to choose Choose your own personal goals. Choose the work you would like to do. Decide to go into business for yourself. Make a variety of economic choices.

Economic Freedoms Freedom to own, use, buy, and sell private property. You own your property, your business profits, your wages, interest paid to you, your time, and your talent. You are free to put them to whatever use will be of the most benefit to you. You are free to make as much income as you would like. Your are free to save, spend and invest your money as you choose. You can do with your land and home as you choose. You can buy goods and services anywhere.

Economic Freedoms Freedom to compete Competition is important characteristic of private enterprise. The freedom to compete is also an important economic freedom for individuals If you own your own business, you can compete with similar businesses for customers.

Economic Freedoms Freedom to compete allows you to market your assets to your best advantage.

Limits to Economic Freedoms People in a private enterprise system cannot buy anything and everything they might like to. Limiting factors Competition Example – if all the tickets are sold for a concert, you won’t be able to purchase one.

Limits to Economic Freedoms People are also limited by their own choices. If you choose to purchase one thing, you may not be able to purchase another. You may need to choose which item is more important to you. If you sell your private property to one person, you cannot sell the same property to anyone else.

Limits to Economic Freedoms Economic freedom is also limited by the laws that have been created to protect people. Businesses may be required to be licensed to safeguard public health. Workers in such professions as health and law: Require specialized training Must pass examinations before they are allowed to provide their services.

Limits to Economic Freedoms Business may not: Dump their wastes into streams. Sell products that are unsafe. Make false advertising claims about what products will do.

Limits to Economic Freedoms No one is permitted to sell: Illegal drugs. Stolen property. Services for which s/he are not trained or licensed to perform.

Limits to Economic Freedoms To have the money necessary to run the country, the government collects taxes from individuals and businesses. This restricts economic freedom since taxpayers cannot use all of their income for their own purposes. However, taxes are a necessary limit to economic freedom since they provide the money needed to pay for: Fire and police protection Public schools Highway construction and repair Other services that people need to operate their businesses