Chapter 3:The American Free

Enterprise SystemAdvantages of the Free Enterprise System

Capitalism/Free Enterprise

System/Market EconomyCapitalism, free enterprise system, and

market economy essentially mean the same thing.

Another name for capitalism is free enterprise system.

Why is capitalism called the free enterprise system?

Proportion of New Businesses Founded in 1992 Still Alive By Year

Source: Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By

What “story” does the graph regarding the

proportion of new business founded in 1992

tell?

Also, look at Figure 3.2 on pg. 72.

Emerging MarketsMost counties have some sort of mixed economic system (a balance between tradition, free enterprise, and government involvement.

In the Mexican and Singaporean economy the government plays a much larger role than in the U.S.

Mexican government has established many rules and regulations to starting any business.

Competition: Popular stall on the streets of Guadalajara, Mexico, selling everything from candy to clothes provide considerable competition for established stores.

How a Free Enterprise System Works

In Chapter 2 you learned that the right to private property is one of the most fundamental freedoms in a capitalist economy.

What steps can a government take to support free enterprise?

protecting/encouraging competition

enforcing contracts

keeping business costs low

Necessary Conditions for Capitalism

Open Opportunity- is the ability of everyone to take part in the market by free choice.

Legal Equality- is a situation in which everyone has the same economic rights under the law.

Free Contract- is a situation in which people decide which legal agreements to enter into.

Profit Motive- is the force that encourages people and organizations to improve their material well being from economic activities.

Profit in RocksIn 1975, Gary Dahl joked that regular pets were too much work.

By the end of the year, he sold two tons of Pet Rocks and became a millionaire.

Interest began to fade. Dahl decided to get out of the pet rock business, guided by the same market forces that had brought him into the business and made him rich.

Competition Over Books

What happened to small independent book stores?

Who took over the book market?

What is happening in the book market right now?

Competition Over Books

2 E-Books Cost More Than Amazon HardcoversSource: nytimes.com