Chapter 3 American Free Enterprise: Private or corporate ownership of capital goods

Features of American Free Enterprise Economic Freedom Competition Private Property Self-Interest Contracts Voluntary Exchange Profit Motive

Economic Freedom Individuals – work wherever they choose Businesses – hire whomever they choose Government – minimal intervention

Competition Producers have an incentive to ‘beat the competition’ Consumers benefit as a result

Think of one way that each fast food provider has tried to beat the competition?

Why are the Buffalo almost extinct and Cows are not?

Private Property Individuals and businesses can buy and sell property and limit its use.

What is significant about this picture What is significant about this picture? What does it tell you about private property?

Self-Interest Consumers and businesses operate to their own benefit. Their decisions do not have to please the government, other consumers, or other producers.

Contracts Individuals and Businesses form written agreements that are legally binding.

Voluntary Exchange Both consumers and producers gain from voluntary exchange of goods/services.

Profit Motive Profit is a powerful incentive that leads entrepreneurs to accept the risk of failure.

Explain what this quote means “Taxes are what we pay for civilized society” Oliver Wendell Holmes Jr., 1904 Taxes are a necessary part of life in the United States. Although taxation has often received a less than favorable review by taxpayers, the benefits of taxation are positive. What do you think is meant by this quote? Do you agree with it? (Answers will vary.)

Government Role in Free Enterprise Public Goods and Services Paid for by taxes Correct for Market Failures

Public Goods and Services Quiz Time!! Were you listening?

Private Goods … Goods and services that can be purchased and consumed by one individual at a time Examples….

Public Goods and Services Public goods: (3 part test) 1. a good/service that can be used by many at the same time without diminishing any one person’s consumption; 2. it is difficult to exclude someone who didn’t pay. 3. Provided by the government, paid for by your tax dollars

Examples

What services does the Government provide to the American People? National Defense Public Education Court System Lighthouses Weather Forecasts Police/fire National Forests Dams Roads Social Security Public Transportation Grants

The "free-rider" problem Why don’t towns charge admission for 4th of July fireworks displays?

Free-Rider Someone who would not pay for a service, but would get the benefits if it were a public good. Did you pay for your Quiz answers??? What was your incentive? If there is little incentive to pay, what happens to the amount of goods and services provided? If people won’t pay, who provides them? How? Homework: Interview 3 adults and complete the survey form .

Public Goods Wrap-up Why don’t we depend on the private sector for all goods and services? What is an example of a pure/nearly pure good/service? What is an example of pure private good? What is an example of a good or service, paid for by tax dollars that may not be a pure good?

Public Goods Find them in the news…

Government Intervention: Correcting Market Failures Externalities are defined as third party (or spill-over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid.  They can be positive or negative

Externalities in English??? Market Prices reflect the benefits and costs received by the producers and consumers involved in an exchange. They do not reflect cost to others. What is the cost (externality) to the customer in pink?

Is it a positive or negative externality? Contributions to public radio or television Positive Car Exhaust Negative Barking dog in city neighborhood

Is it a positive or negative externality? Apartment dwellers who buy fire extinguishers positive Crying babies on crowded airplanes Very negative

Life on Dismal Lake A study in externalities… Part 1: 4 volunteers