1. The Basic Principles of Free Enterprise
1. Profit Motive
drive for the improvement of material well-being.
2. Open opportunity
anyone can compete in the marketplace.
3. Legal equality
Equal rights to all.
4. Private property rights
control your possessions as you wish.
5. Free contract
decide what you want to take part in.
6. Voluntary exchange
decide how and when you want to buy or sell a product.
7. Competition
rivalry among sellers to attract consumers.

2. The Consumer’s Role
The free enterprise system gives consumers the freedom to make their own choices.
consumers make their desires known by buying products. This tells producers what to produce and how much.
Consumers also make their desires known by joining interest groups
(private organizations that try to persuade public official’s votes)

3. Public Disclosure Laws
The Government’s Role
Government protection:
Public Disclosure Laws
require companies to provide important information.
(such as fuel efficiency of automobiles, side-effects of medication)

4. Tracking Business Cycles
A business cycle is a period of a macroeconomic expansion and contraction.
One way to measure of a nation’s macroeconomy is gross domestic product (GDP)
GDP is the total value of all goods and services produced in an economy.
Government Policymakers pursued outcomes:
Employment (4 to 6%)
Growth
Stability

5. Encouraging Innovation
The government encourages the development of new Technology
Federal agencies fund research and development
- A patent gives the exclusive right to produce and sell inventions. (usually 20 years)
Helps maintain a high standard of living

6. Public Goods
A public good is a shared good or service that is impractical to pay individually and to exclude nonpayers.
funded by the public sector
Examples include:
Public parks
Airports
Dams
Road systems

7. Externalities
a side effect of a good or service that generates benefits or costs to others. (side effect)
The building of a new road system:
Positive Externality
Smoother flow of traffic
Negative Externalities
Pollution cased by cars

8. The Poverty Problem
poverty threshold is an income level below what is needed to support families.
determined by the federal government and is adjusted periodically.
Welfare is a general term that refers to government aid to the poor.

9. Redistribution Programs
Cash transfers are direct payments of money to eligible people.
Temporary Assistance for Needy Families (TANF)
allows states to decide how to use federally provided funds.
Social Security
direct cash transfers of retirement income to the elderly and living expenses to the disabled.
Stability
money to eligible workers who have lost their jobs.
Workers’ Compensation
cash transfer of state funds to employees injured on the job.

10. Other Redistribution Programs
In-kind benefits
free or reduced prices (food stamps, subsidized housing)
Medical benefits
for the elderly and disabled (Medicare)
for people who are unemployed or are not covered by their employer’s insurance (Medicaid).
Education benefits
free educational opportunities.