UNIT FOUR AMERICAN FREE ENTERPRISE

Basic Principles of American Free Enterprise System Thom Jensen 1 Profit Motive The desire of individuals and business improve your situation. Click on image 2 Open Opportunity Everyone has the same opportunities to enter markets either as a consumer or producer/provider. Click on image

Basic Principles of American Free Enterprise System 3 Legal Equality We all have legal rights in the marketplace. Click on image 4 Private Property The right to private ownership of property.

Basic Principles of American Free Enterprise System 5 Free Contract You can freely enter into financial agreements. 6 Voluntary Exchange Free to sell and buy products, with limited government intervention.

Basic Principles of American Free Enterprise System 7 Competition Producers struggle for consumer $$$. Vs. Vs. Vs. Vs.

Role of Consumer in the American Free Enterprise System We have “god-like” power with our $$$$$. We decide who lives and who dies by choosing to purchase goods or not to purchase goods. DOLLAR VOTES

Role of Producer in the American Free Enterprise System 1) To provide the goods and services that the consumers want and need. 2) To pay a “fair” wage to employees so they may make purchases. 3) To provide protection for the environment, workers and consumers.

Why do we need the government in the market place? The Role of Government in the American Free Enterprise Why do we need the government in the market place? We the people of the United States, in order to form a more perfect union, 1) establish justice, 2) insure domestic tranquility, 3) provide for the common defense, 4) promote the general welfare, and 5) secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America. If men were angels, no government would be necessary. James Madison Federalist Papers # 51

The Role of Government in the American Free Enterprise 1) Protecting Consumers Example: Public Disclosure Laws Business must provide information about their products to the consumer. Example: Warning Labels

April 28, 1988 Aloha Airlines Flight 243

The Role of Government in the American Free Enterprise 2) Business operates in a safe manner Ensure that workers are safe. Protect the environment Ensure that products are produced in safely.

The Role of Government in the American Free Enterprise 3) Provide Public Goods Provide goods and services that would be impractical or impossible for private business to supply. Examples: Libraries, roads, parks Fire and Police, National Defense, Schools

The Role of Government in the American Free Enterprise 4) Protect against MARKET FAILURES If a business can not make a profit, it will not be provided. Example: Public Housing or Low Cost Housing

The Role of Government in the American Free Enterprise 5) Providing a SAFETY NET The Great Depression showed what happens when a society did not provide “Safety Nets”. Massive Unemployment Poverty

The Role of Government in the American Free Enterprise 6) Promoting Growth and Stability Tracking Economic Indicators Gross Domestic Product-Most important Total value of all products produced over a period of time. Unemployment New Home Sales Construction Spending

What is a RECESSION? 2 Consecutive Quarters (6 months in a row) of negative growth in the GDP. (Gross Domestic Product) We usually don’t know we are in a recession or depression until after we are already in one!! The Government did not officially announce we were in recession until Dec 2008. (It started in Dec 2007) Notice Dec 08 June 2009 Dec 2007

Expansion is only after we have crossed the previous peak. The Business Cycle +5% Expansion Contraction Recession Recovery Expansion Expansion Peak GDP Growth Expansion is only after we have crossed the previous peak. Trough -5% GDP- Gross Domestic Product Total Value of all products/services of a country during a period of time

RECESSION THE GREAT RECESSION NOTICE THERE HAVE BEEN 11 RECESSIONS SINCE THE END OF WORLD WAR II AVG EVERY 5-6 YEARS HOPEFULLY THE GREAT RECESSION

The Business Cycle Expansion Contraction Recession Recovery Peak Economy is growing. Jobs are being created. Low unemployment. GDP is increasing Contraction Economy slows down Fewer jobs being created. Increased unemployment. GDP is still positive, but it is decreasing. Recession Economy is in decline Almost no jobs being created. Higher unemployment GDP is negative. (must be negative for two consecutive quarters of the year.) Recovery Economy starts to grow Jobs start to be added Unemployment starts turning around. GDP is increasing, but has not reached the previous peak. Peak Economy at its high point Trough Economy at its lowest point before turning around.

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