Warm Up- Copy Right? Copy and Answer the following question (5 minutes from bell ring): Explain why you think that you should or should not download music for free from the Internet. Include at least three reasons to support your argument.

Capitalism and Free Enterprise

Features of Capitalism The U.S. economy is built on capitalism and free enterprise. Capitalism is an economic system in which private citizens own and use the factors of production to seek a profit. Free enterprise is an economy in which competition is allowed to flourish with a minimum of government interference.

Consumer Sovereignty Markets are places where different sectors of the economy interact, and their exchanges determine the prices of goods and services. Businesses try to produce the products people want most. Because of this, we use the term consumer sovereignty to describe the consumer as ruler of the market, the one who determines what products will be produced.

Choice Choice is a key element for free enterprise. We are free to choose the occupation we want and where we want to work. We can choose the products we will buy. Businesses can choose the products they will produce and offer for sale.

Consequence Along with the freedom to choose comes the responsibility to accept the consequences of the decisions. If an entrepreneur starts a business that fails, the government usually won’t help out.

The Right to Own Property Under capitalism, we also have private property rights. We are free to own and use, or dispose of, our own property as we choose as long as we do not interfere with the rights of others. These rights give us the incentive to work, save, and invest.

Competition Capitalism thrives on competition—the struggle between buyers and sellers to get the best products at the lowest prices. Competition rewards the most efficient producers and forces the least efficient out of business. Competition results in efficient production, higher- quality products, and more satisfied customers.

Profit & Profit Motive Profit is the money left over after all costs of production have been paid. The profit motive is the driving force behind free enterprise and capitalism. People are willing to invest in a business venture and risk losing their investment for the chance to earn a profit.

Voluntary Exchange Voluntary exchange is the act of buyers and sellers freely and willingly engaging in market transactions. As long as exchanges are voluntary, both buyer and seller must feel that they benefit from their exchange, or they will not do it.

Protecting your Product Patent- gives the inventor of a new product the right to produce and sell it for 20 years. Copyright- gives an author the exclusive right to sell his or her creative works. –As a producer these protections give you security, equity and freedom.

Circular flow of economic activity Government plays a part in the circular flow of the economy in most modern economies They buy land, labor and capital to produce goods, and they provide certain goods and services as well. They also collect taxes from individuals and businesses. They then give money to individuals and businesses. monetary flow physical flow monetary flow physical flow Circular Flow Diagram of a Mixed Economy Households Firms Product market Factor market Government expenditures taxes government purchases government- owned factors taxes

Economic Interdependence This is the system that is created by a mixed economic model and therefore makes the government, business and the individual interlocked in economics.

The Spread of Capitalism Capitalism developed gradually over hundreds of years. Two concepts underlie the market system: –People Can Work for Economic Gain, and –Government Should Have a Very Limited Role in the Economy

Economist-Adam Smith In his book The Wealth of Nations, Scottish economist Adam Smith scientifically described the basic principles of economics for the first time. Smith believed that individuals, in seeking profit, end up benefiting society as a whole.

Laissez-Faire From the writings of Smith and others came the idea of laissez-faire, meaning “to let alone.” According to this philosophy, government should not interfere in the marketplace. Government’s role is to ensure free competition. Many American Founders were influenced by Smith’s book.

Other Market Systems- Command Economy In a pure command economy, the central government makes the major economic decisions. Individuals have few choices and little influence over the economy. This system has also been called a controlled economy, socialism, or communism. Socialism is the belief that the means of production should be owned and controlled by society, either directly or through the government. Under communism one class would evolve, property would all be held in common, and there would be no need for government.

Other Market Systems- Mixed Economies A mixed economy combines basic elements of a pure market economy and a command economy. Most countries have a mixed economy that combines private ownership of property and individual decision making with government intervention and regulations.

Other Market Systems- Traditional Economies In traditional economies, economic decisions of what, how, and for whom to produce are based on custom or habit. The way of life is passed down from generation to generation.

Name that Economy – Class Game Students will be broken into 5 separate groups, and each will have four different response cards. Each response card will be labeled with a different economic system (mixed, traditional, free market, command). I will display a description of an imaginary country on the board. Each description is connected to one of the four economic systems we discussed. The groups will have 5 seconds to decide what type of economy is being described, and will then hold up the appropriate response card.

Scenario A After much deliberation, state planners in country A have decided that it would be in their country’s best interest to produce more automobiles than textiles. The state planners have allocated the resources needed to construct the automobiles and instructed the various factories on how many automobiles should be produced.

Scenario B In country B, the CEO of Ryland Audio recently decided to increase production levels on the company’s latest version of an MP3 player and decrease production levels on the company’s compact disc players. The decision was made since more profit is to be gained by meeting demand and selling MP3 players.

Scenario C When times are difficult in Country C, people tend to rely on their communities for assistance. Changing temperatures, which greatly alter harvests, can lead to troublesome times. In country C it is very important to form strong bonds with neighbors with whom people can share or trade.

Scenario D As long as the business owners in Country D can abide by fair trade policies, they can produce and sell whatever goods they please. For example, owners of a video game company in country D decided to wait until the holidays to release a new game to increase the anticipation and profit for the game.

Homework: 1. Who wrote the document that called for the proletariat to overthrow the bourgeoisie and what is the name of the document? 2. What kind of economy did Adam Smith feel should be guided by the Invisible hand? 3. What kind of economy do we have in the US? Why? 4. What are two traits of a Traditional economy? 5. Communism and Socialism are both examples of what type of economy? 6. What is the French term that Smith uses to describe a “hands off” approach to the economy? 7. What are two ways that people can protect their property from being produced or sold by someone else? 8. In the US, we agree to buy or sell private property, what is that called?