The Basic Principles of Free Enterprise 1. Profit Motive drive for the improvement of material well-being. 2. Open opportunity anyone can compete in the marketplace. 3. Legal equality Equal rights to all. 4. Private property rights control your possessions as you wish. 5. Free contract decide what you want to take part in. 6. Voluntary exchange decide how and when you want to buy or sell a product. 7. Competition rivalry among sellers to attract consumers.

The Consumer’s Role The free enterprise system gives consumers the freedom to make their own choices. consumers make their desires known by buying products. This tells producers what to produce and how much. Consumers also make their desires known by joining interest groups (private organizations that try to persuade public official’s votes)

Public Disclosure Laws The Government’s Role Government protection: Public Disclosure Laws require companies to provide important information. (such as fuel efficiency of automobiles, side-effects of medication)

Tracking Business Cycles A business cycle is a period of a macroeconomic expansion and contraction. One way to measure of a nation’s macroeconomy is gross domestic product (GDP) GDP is the total value of all goods and services produced in an economy. Government Policymakers pursued outcomes: Employment (4 to 6%) Growth Stability

Encouraging Innovation The government encourages the development of new Technology Federal agencies fund research and development - A patent gives the exclusive right to produce and sell inventions. (usually 20 years) Helps maintain a high standard of living

Public Goods A public good is a shared good or service that is impractical to pay individually and to exclude nonpayers. funded by the public sector Examples include: Public parks Airports Dams Road systems

Externalities a side effect of a good or service that generates benefits or costs to others. (side effect) The building of a new road system: Positive Externality Smoother flow of traffic Negative Externalities Pollution cased by cars

The Poverty Problem poverty threshold is an income level below what is needed to support families. determined by the federal government and is adjusted periodically. Welfare is a general term that refers to government aid to the poor.

Redistribution Programs Cash transfers are direct payments of money to eligible people. Temporary Assistance for Needy Families (TANF) allows states to decide how to use federally provided funds. Social Security direct cash transfers of retirement income to the elderly and living expenses to the disabled. Stability money to eligible workers who have lost their jobs. Workers’ Compensation cash transfer of state funds to employees injured on the job.

Other Redistribution Programs In-kind benefits free or reduced prices (food stamps, subsidized housing) Medical benefits for the elderly and disabled (Medicare) for people who are unemployed or are not covered by their employer’s insurance (Medicaid). Education benefits free educational opportunities.