1. The American Free Enterprize Economy
Chapter 3
The American Free Enterprize Economy

2. Characteristics of Free Enterprise Capitalism
Guiding Question!
How does the American economy incorporate the main characteristics of a free enterprise economy?

3. Chapter 3 Lesson 1 American Free Enterprise Capitalism
Characteristics of Free Enterprise Capitalism
A free enterprise economy has both capitalism and free markets.
Characteristics of a capitalistic free enterprise economy include economic freedom, voluntary exchange, private property rights, the profit motive, and competition.
Economic freedom allows you to choose your occupation, employer, and job location.
Capitalism allows voluntary exchange between buyers and sellers.
Private property rights allow people to own and control possessions, which gives them the incentive to work, save, and invest.
The profit motive is largely responsible for the growth of a free enterprise system.
Competition benefits both consumers and the economy.

4. What three terms are synonymous terms that describe the U. S
What three terms are synonymous terms that describe the U.S. economic system?
Capitalism
Free Market
Free Enterprise

5. Chapter 3 Lesson 1 American Free Enterprise Capitalism
Benefits of Free Enterprise Capitalism
Guiding Question
How does a free enterprise economy provide opportunities for individuals?

6. Chapter 3 Lesson 1 American Free Enterprise Capitalism
Benefits of Free Enterprise Capitalism
Individual freedom is closely related to economic freedom.
Market economies produce a huge variety of goods.
Market economies adjust daily, mainly through the ever-changing prices of goods and services.
Intense competition in a free market capitalist economy promotes economic progress in the form of a continuing supply of newer and better products.
When more and better products are produced in a free market capitalistic system, wealth is created.

7. Chapter 3 Lesson 1 American Free Enterprise Capitalism
How does the free enterprise system allow for the ability to more easily adapt to changing economic conditions? The free enterprise system can adjust to changing economic conditions through the price system. The ability of market economies to change prices allows for adjustments that keep free enterprise running smoothly in the face of short- and long-term fluctuations.

8. Chapter 3 Lesson 1 American Free Enterprise Capitalism
Disadvantages of Free Enterprise Capitalism
Guiding Question
What are the weak points of the free enterprise economy?

9. Chapter 3 Lesson 1 American Free Enterprise Capitalism
Disadvantages of Free Enterprise Capitalism
Periods of uneven economic growth are one of the disadvantages of free enterprise capitalism.
In free enterprise capitalism, the gaps between rich and poor citizens seem to increase.
In free enterprise economies, suppliers tend to combine to avoid competition, which results in fewer participants on the supply side of the market.
Businesses such as corporations have most of the same rights as individuals, but they also have many responsibilities as a result of government-imposed regulations.

10. Chapter 3 Lesson 1 American Free Enterprise Capitalism
How do the “supply-side tendencies” in a free enterprise economy tend to work to the disadvantage of the consumer? Supply-side tendencies can result in the suppliers combining efforts to avoid competition. This can result in the consumer having fewer purchasing and cost options.

11. Chapter 3 Lesson 2 Roles and Responsibilities in a Free Enterprise Economy
What does an entrepreneur do?
What makes the role of entrepreneur challenging?
What makes the role of entrepreneur rewarding?
How does an entrepreneur relate to consumers and to the government?
An Entrepreneur brings new products and jobs to the market.
The challenger for the role of the entrepreneur is the risk that they take in business.
Entrepreneurs are rewarded with profits from their successful risk.
Entrepreneur finds what the consumer wants, produces that good or service under government regulations and gives taxes to the government as payment for doing business in that nation.

12. Chapter 3 Lesson 2 Roles and Responsibilities in a Free Enterprise Economy
The Role of the Entrepreneur!
Why are entrepreneurs essential to the success of a free enterprise economy?
Entrepreneurs are important because they are willing to
take risks to start new businesses,
so they become the catalyst of the free enterprise economy.
Most entrepreneurs fail,
but some survive
and a few even become wealthy.
Successful entrepreneurs attract other firms to the industry, eventually
leading to new products,
greater competition,
more production,
higher quality products,
and lower prices.

13. Chapter 3 Lesson 2 Roles and Responsibilities in a Free Enterprise Economy
How does the ability to “rent” equipment promote entrepreneurship?
How does entrepreneurship help the economy grow?
Why is the entrepreneur and his or her economic freedom so important to the health of the free- market economy?
It enables people with ideas to start a business even if they lack financing to purchase equipment.
Whenever small businesses start, they provide jobs and new, perhaps innovative products, which will stimulate competition.
Entrepreneurs create jobs, contribute to growing the economy, pay taxes, and provide consumers with more and better products. They attract additional firms into their industry, which creates competition and thereby reduces prices and improves the quality and variety of products.

14. Chapter 3 Lesson 2 Roles and Responsibilities in a Free Enterprise Economy
The role of the consumer!
What role do consumers play in a free enterprise system?
Consumers ultimately determine WHAT to produce.
The term consumer sovereignty reflects the idea that the consumer rules the market.
Consumers play an important role in the American free enterprise economy because their spending helps determine what is, and is not, produced.

15. Chapter 3 Lesson 2 Roles and Responsibilities in a Free Enterprise Economy
How is a consumer like an entrepreneur?
What is the role of the consumer in the free market economy?
Both the consumer and the entrepreneur enable the economy to grow:
the entrepreneur by creating products and competition, and
the consumer by expressing demand and stimulating business development.
Both put money into the market, which creates jobs and promotes economic growth with its related benefits.
The consumer plays the role of “judge” in a free enterprise system by determining
which products and services succeed by
purchasing the products and services that best meet their needs.

16. Chapter 3 Lesson 2 Roles and Responsibilities in a Free Enterprise Economy
The role of the government!
How is the role of government determined in the American free enterprise system?
Government has become involved in the American free enterprise system because its citizens want it that way.
The government passes laws to help protect citizens from
false advertising,
unsafe food and drugs,
environmental hazards, and
unsafe products.
All levels of government provide goods and services for citizens, including
education,
highways,
public welfare,
and many others.
The government regulates economic activity to help preserve competition in the marketplace.
The government spends more than all private businesses combined, so it has become a huge consumer in the marketplace.

17. Chapter 3 Lesson 2 Roles and Responsibilities in a Free Enterprise Economy
What role does the government play in a free enterprise system?
In what situations do you think the cost of government actions outweigh the benefits?
The government acts as
a protector,
a provider,
a regulator, and
a consumer in a free enterprise economy.
Some might think certain actions, like enforcing a national minimum wage, will cost jobs and raise the prices of goods or services.

18. Chapter 3 Lesson 2 Roles and Responsibilities in a Free Enterprise Economy
Mixed or Modified Free Enterprise!
Why has the free enterprise system been modified to include some government intervention?
In a mixed or modified free enterprise economy, people and businesses carry out their economic affairs freely, but are subject to some government intervention and regulation.
The question of how much government involvement is necessary is one of the great unsolved questions of our times.
The American system is a mixed or modified free enterprise economy because the majority of the people want it that way.

19. Chapter 3 Lesson 2 Roles and Responsibilities in a Free Enterprise Economy
Why do Americans want government to play a role in the economy?
What makes the U.S. economy a mixed, or modified free enterprise economy?
Americans want government to play a role in the economy because the private sector cannot provide services like national defense or a system of laws.
People and businesses can carry on economic affairs freely but are subject to some government regulation and intervention.

20. Chapter 3 Lesson 3 Evaluating Economic Performance
Which of these economic systems best describes the United States?
How do you know?

21. Chapter 3 Lesson 3 Evaluating Economic Performance
Which of these economic systems best describes the United States?
How do you know?
The United States has a market economy system.
We Know because
Individuals make most economic decisions; they own the factors of production;
they have a high degree of individual freedom;
they have access to a large variety of goods and services;
people have little incentive to engage in unprofitable ventures;
and people experience a high degree of economic uncertainty.

22. Chapter 3 Lesson 3 Evaluating Economic Performance
What are some examples of traditional and command economies?
traditional: Inuit; command: Cuba

23. Chapter 3 Lesson 3 Evaluating Economic Performance
Economics and Social Goals
Why might our economic goals change over time?
The belief in economic freedom is one of the cornerstones of American society.
Economic efficiency is a major goal because resources are scarce and people understand that the factors of production must be used wisely.
Americans have a strong belief in economic equity, which includes justice, impartiality, and fairness.
Unemployment compensation, Social Security, and Medicare are examples of government programs to provide economic security.
Price stability adds a degree of certainty to the future for both businesses and consumers.
Economic growth is a major goal, and new goals develop as society evolves.

24. Chapter 3 Lesson 3 Evaluating Economic Performance
What effect does efficiency have on the number of goods available?
What is the difference between equity a nd equality?
How might the goal of protecting the environment conflict with the goals of efficiency or full employment?
Higher efficiency produces a greater number of goods with the original amount of resources.
Equity means “fairness”; equality means “the same.”
Protecting the environment might mean
limiting the use of resources such as timber,
which would cost jobs, or
regulating the amount of pollution that firms could produce,
which might drive some firms out of business.

25. Chapter 3 Lesson 3 Evaluating Economic Performance
Resolving Trade-Offs Among Goals!
How are conflicts among economic goals resolved?
Two significant issues with goals are that they sometimes conflict and that achieving them has opportunity costs.
If trade-offs are political issues, people can help resolve them by voting.
The economic system of the United States is flexible enough to allow choices, accommodate compromises, and still satisfy the majority of its citizens.

26. Chapter 3 Lesson 3 Evaluating Economic Performance
Why do trade- offs among goals exist?
What are some ways that Americans have modified the free enterprise economy?
Sometimes goals are in conflict, and there are opportunity costs associated with achieving goals.
Government provides social goods; products such as cigarettes and alcohol have age limits; only drugs approved by the FDA can legally be sold.