1. Lecture #9: Free Enterprise Part 2

2. Ethics & Free Enterprise
Consists of the principles of conduct such as:
right & wrong
morality & immorality
good & bad
Remember when taking Cornell Notes you need to come up with at least 3 questions per page!

3. Ethics & Free Enterprise cont.
Why
Free Enterprise is Ethical!
Allows individuals to choose their occupations or professions
Produces goods & services preferred by both the majority and the minority
Rewards producers for responding to the buying public
Punishes sellers who don’t respond to public preferences (go out of business)
Supports the right of the individual to be free, including the freedom to acquire property, work where they chose, and start own business

4. Economics in Key Documents
Key US Documents
Declaration of Independence
desire to practice free trade/free enterprise
one of the complaints to King George III
Constitution—Article 1, Section 8
Preserves competition—states can not tax each other’s goods
Bill of Rights—protects private property.
If the government wants your land it has to pay for it.

5. Rights & Responsibilities
3 Sets
Open Disclosure—the right to sell an item comes with the responsibility to disclose facts about the item
EX: Selling a house or car—must disclose if they have any problems or else you can get sued!
Obeying the law—one has the right to use private property the way they wish, w/in the limits of the law
EX: You can’t use your private property to open a meth lab!
Being truthful—must be truthful in trade & commerce
EX: You can’t tell someone your product will make them skinny if it doesn’t!

6. Entrepreneurs
Entrepreneurs
Is a person who has special talent for searching out & taking advantage of new business opportunities
take risks to develop new products or new ways of doing things
tiny minority of population
people will not risk their time & money to develop a new product unless they can potentially earn a profit

7. Entrepreneurs (cont) Answer the following in your notebook:
What new product can you think of developing?
How about a new way of doing something?

8. The Role of Government in a Free Enterprise Economy
Gov’t as Enforcer of Contracts
Contract—an agreement between 2 or more people to do something
Gov’t needs to enforce contracts

9. Government as a provider of Nonexcludable Public Goods
private good—a good of which one person’s consumption takes away from another person’s consumption.
Ex: Food & Gas
public good— a good of which one person’s consumption does not take away from another person’s consumption.
Ex: Movie in a movie theater

10. Government as a provider of Public Goods
Goods—excludable or nonexcludable
excludable public good—a public good that individuals can be excluded (physically prohibited) from consuming.
Ex: a college lecture—only available to students enrolled at the college
nonexcludable public good— a public good that individuals can not be excluded (physically prohibited) from consuming.
Ex: National Defense, dam, etc.
People must pay taxes to get these goods
People can vote to influence what the gov’t does

11. Positive & Negative Externalities
negative externality—an adverse side effect of an act that is felt by others.
Ex: Speeding on the freeway
Some say the role of gov’t is to reduce negative externalities
Can be done through court system, regulation, & taxation
positive externality—a beneficial side effect of an action that is felt by others.
Ex: Education—help you earn a living, become a better citizen & a more informed voter

12. Review—True or False
In an ethical system, people are free to choose whatever job they wish.
TRUE
An ethical system does not punish the producers.
FALSE
An ethical system gives producers the freedom to fail.
Rights rarely come without responsibility.

13. Review—True or False An entrepreneur develops new products.
No entrepreneur can make us better off.
FALSE
Less profit for entrepreneurs means more money in our pockets.
Entrepreneurs develop new ways of doing things.

14. Review—True or False A contract is a good shared by 2 or more people.
A private good is a good of which one person’s consumption takes away from another person’s consumption.
TRUE
National defense is an excludable public good.
Regulation & taxation are always positive externalities.

15. Summary
When completing your notes you need to write a 3-5 sentence summary of the lecture. This is a part of your notes grade!