Chapter 3 American Free Enterprise

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

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

Competition Producers have an incentive to ‘beat the competition’ Producers have an incentive to ‘beat the competition’ Consumers benefit as a result 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. Individuals and businesses can buy and sell property and limit its use.

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

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

Voluntary Exchange Both consumers and producers gain from voluntary exchange of goods/services. 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. Profit is a powerful incentive that leads entrepreneurs to accept the risk of failure.

“Taxes are what we pay for civilized society” Oliver Wendell Holmes Jr., 1904 Explain what this quote means

What services does the Government provide to the American People? Public Works Medicaid/Medicare Disaster Relief UnemploymentWelfare Police, Fire EducationRoads Social Security Public Transportation Grants

Why does the Government Produce Goods and Services? Public goods: a good/service that can be used by many at the same time without diminishing any one person’s consumption; it is difficult to exclude someone from the good.

Examples

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

Why does the Government Produce Goods and Services? 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. 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.

Examples of positive externalities a beautiful garden on a busy street a beautiful garden on a busy street the safer neighborhood for others that results from some residents hiring private security patrols the safer neighborhood for others that results from some residents hiring private security patrols

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

Free-Rider Someone who would not pay for a service, but would get the benefits if it were a public good. Someone who would not pay for a service, but would get the benefits if it were a public good.

Why is there pollution?

Examples of negative externalities include an unmowed lawn in a suburban neighborhood, or automobile exhaust, or second-hand cigarette smoke. include an unmowed lawn in a suburban neighborhood, or automobile exhaust, or second-hand cigarette smoke.

Externalities What are the externalities created? What are the externalities created? Snowplowing Snowplowing A poker room A poker room Garbage Pickup Garbage Pickup Homelessness Homelessness

Broken Windows Theory "One unrepaired broken window is a signal that no one cares, and so breaking more windows costs nothing."

Broken windows policing assumes that serious crime can be reduced by strongly enforcing minor crimes. Broken windows policing assumes that serious crime can be reduced by strongly enforcing minor crimes. The "broken window" theory suggests that neighborhood order strategies such as those listed below help to deter and reduce crime. The "broken window" theory suggests that neighborhood order strategies such as those listed below help to deter and reduce crime. Quick replacement of broken windows Quick replacement of broken windows Prompt removal of abandoned vehicles Prompt removal of abandoned vehicles Fast clean up of illegally dumped items, litter and spilled garbage Fast clean up of illegally dumped items, litter and spilled garbage Quick paint out of graffiti Quick paint out of graffiti Finding (or building) better places for teens to gather than street corners Finding (or building) better places for teens to gather than street corners Fresh paint on buildings Fresh paint on buildings Clean sidewalks and street gutters Clean sidewalks and street gutters

Why does poverty exist in the United States? What Safety nets exist?

Public Goods that cannot be privately provided

Why does the Government Produce Goods and Services? Merit goods: goods/services that have a social value over and above their utility for the individual consumer.

What are the benefits of having a good school in your community?

Examples of Merit Goods IS THIS AN EXAMPLE OF MERIT GOOD? WHY OR WHY NOT?