1. Section 3.2 Government and Consumer Functions
Marketing Essentials
n Chapter 3 The Free Enterprise System
Section 3.2 Government and Consumer Functions

2. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
What You'll Learn
The roles government plays in our free enterprise system
Supply and demand theory

3. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
Why It's Important
As a consumer, you need to understand your power to affect the prices you pay for products. As a voter, you have a responsibility to understand how decisions made by the government affect you, your investments, and your life in general.

4. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
Key Terms
demand
supply
equilibrium
surpluses
shortages

5. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
The Role of Government
The United States is a modified free enterprise system. In such a system, the government acts as:
provider of services
supporter of business
regulator
competitor

6. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
Government as Provider of Services
To ensure the safety and general welfare of people in the United States, the government provides:
military protection
police protection
fire protection
free public education
job training
roads and bridges
public libraries
welfare system
health care for the elderly and poor

7. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
Government as Supporter of Business
The government provides disaster assistance to help both businesses and homeowners rebuild after disasters.
The Small Business Administration provides counseling and educational materials to support business.
The government is the largest consumer of goods and services in the U.S.

8. Government and Consumer Functions
SECTION 3.2
Government and Consumer
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Government as Regulator
In the United States, most laws are designed to protect the safety, health, and welfare of individuals and the freedom of businesses to operate in our free enterprise economic system.

9. Government and Consumer Functions
SECTION 3.2
Government and Consumer
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Government as Regulator: Consumer and Worker Protection
The government protects workers and consumers through the following federal agencies:
Food and Drug Administration (FDA)
Equal Employment Opportunity Commission (EEOC)
Occupational Safety and Health Administration (OSHA)
Consumer Product Safety Commission (CPSC)
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10. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
Government as Regulator: Consumer and Worker Protection
Environmental Protection Agency (EPA)
The Securities and Exchange Commission (SEC)
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11. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
Government as Regulator: Business Protection
The government provides laws and regulations regarding patents, copyrights, and trademarks.
The government regulates trade with other countries to protect national security and to protect U.S. companies from unfair competition.
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12. Government and Consumer Functions
SECTION 3.2
Government and Consumer
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Government as Regulator: Business Protection
The Sherman Antitrust Act, passed in 1890, outlawed monopolies in business, protecting competition.
The Clayton Antitrust Act, passed in 1914, closed loopholes in the Sherman Antitrust Act.
The Federal Trade Commission (FTC) enforces both acts.
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13. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
Government as Regulator: Business Protection
The Federal Reserve System is the nation's banking system. The Federal Reserve Board of Governors controls interest rates, increasing or decreasing rates to manipulate economic activity and inflation.
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14. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
Government as Competitor
The federal government runs three businesses:
Tennessee Valley Authority provides electricity to the rural South
U.S. Postal Service provides national mail delivery
Amtrak provides passenger rail service, established under the Rail Passenger Act of 1970.

15. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
The Role of the Consumer
Consumers do two major things in the marketplace:
They pick the winners—the products and businesses that will be in the marketplace tomorrow.
They determine the demand for any given product, and therefore help determine prices.

16. Government and Consumer Functions
SECTION 3.2
Government and Consumer
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Deciding Which Businesses Survive
Consumers decide which businesses will survive by "voting" with each purchase. The more votes (sales) a product gets, the more likely that product or company will survive.

17. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
Determining Prices
Prices in a free enterprise system are determined by supply and demand.
Supply and demand interact to determine the price customers are willing to pay for the number of products producers are willing to make.
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18. Government and Consumer Functions
SECTION 3.2
Government and Consumer
Functions
Determining Prices
Demand refers to consumer willingness and ability to buy products. According to the law of demand, if the price is low enough, demand for a product usually increases.
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19. Government and Consumer Functions
SECTION 3.2
Government and Consumer
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Determining Prices
Supply is the amount of goods producers are willing to make and sell.
higher prices = more products for sale
lower prices = less products for sale
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20. Government and Consumer Functions
SECTION 3.2
Government and Consumer
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Determining Prices
Equilibrium exists when the amount of product supplied is equal to the amount of product demanded.
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21. Government and Consumer Functions
SECTION 3.2
Government and Consumer
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Surpluses
Surpluses of goods occur when supply exceeds demand. When this happens, businesses respond by lowering their prices in order to encourage people to buy more of the product.
Example: When grocery stores have lots of produce, they price the produce low to encourage people to buy.

22. Government and Consumer Functions
SECTION 3.2
Government and Consumer
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Shortages
When demand exceeds supply, shortages of products occur. When shortages occur, businesses can raise prices and still sell their merchandise.
Example: An oil shortage increases the price of gasoline, so consumers who want to drive their vehicles pay the higher price.

23. Reviewing Key Terms and Concepts
ASSESSMENT
3.2
Reviewing Key Terms and Concepts
1. Name four ways government is involved in our free enterprise system.
2. Why is the United States said to have a modified free enterprise system?
3. What is the FTC, and what does it do?
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24. Reviewing Key Terms and Concepts
ASSESSMENT
3.2
Reviewing Key Terms and Concepts
4. In the U.S. free enterprise system, who decides which businesses will survive and what prices will be charged for the goods sold?
5. What is the equilibrium point in supply and demand theory?
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25. ASSESSMENT Thinking Critically 3.2
A new airline starts up with low fares and many new routes. At the same time, established airlines drop their fares and add new flights to match the routes of the new airline. Is this against the law? Explain your position.

26. Graphic Organizer 3.2 The Determinants of Demand Demand
Existence of Substitutes
Prices of Complimentary Goods
Tastes
and Preferences
Demand
Changes in Population
Income

27. Marketing Essentials
End of Section 3.2