CHAPTER 3 AMERICAN FREE ENTERPRISE
Section1 Benefits of Free Enterprise
Constitutional Protections
Property Rights 5th Amendment Eminent Domain
“blighted” Taxation
Two certainties in life: “Death & Taxes” Congress has the power to levy taxes 16th Amendment allows income tax
Guarantees right to make binding contracts
Basic Principles of Free Enterprise Profit Motive
Self-incentive Your idea, your profit You decide vocation, not government
Open Opportunity Anyone can start a business
Economic Rights Legal Equality Private Property Rights
Land! Free contract Voluntary exchange
All of these things leads to: competition
The Role of the Consumer
Consumer Sovereignty Buy what you need
Shop for what you want Consumption signals producers
The Role of Government
Government is expected to uphold its constitutional responsibilities
Information and Free Enterprise Informed buyers are efficient Product information
recalls Protecting Health, Safety & Well-being Negative Effects of Regulation
Government involvement ALWAYS increases cost
Section 2 Promoting Growth & Stability
Tracking Business Cycles
Macroeconomics The study of large economic systems
Microeconomics The study of small economic systems
Gross Domestic Product (GDP) The value of ALL goods & services produced in
an economy Measured quarterly & totaled yearly
The Business Cycle
Promoting Economic Strength
Government economic policy Stabilize Employment Ensure growth Economic Stability
Provides confidence in institutions like banks Assurances of solvency
Stable price level (inflation)
Technology & Productivity
Technology & Productivity
Work smarter not harder (work ethic) Technology
Allows us to produce more
Section 3 Providing Public Goods
Public Goods
A shared good or service that is impractical for the individual to provide Parks Water delivery Roads Dams Military Others?
Public Goods
Costs & Benefits Shared costs Shared benefits
Free-Rider Problem Benefits without the cost
Market Failures
Simply represents the fact that commerce is carried out to the benefit of producers No allowance is made for benefit outside of
commerce Businesses would build roads to benefit their
customers, not the customers of another business
Externalities
CH 3.4 PROVIDING A SAFETY NET
The free market generates wealth unevenly
Some live at or below the poverty threshold2012: 1 person under age 65 $
11,1702012: 4 person family $ 23,0502012: median household income
$50,054
The role of the government:To provide for those unable to care for themselveselderly, handicapped
This reflects societies values
The Modern Welfare SystemStarted in the 1930’sTaxes individuals & redistributes wealth
Poverty Rate 1970-2010 14%
Lyndon B. Johnson’s “War on Poverty”
Estimated cost $15,000,000,000,000 with little long term improvement
Redistribution ProgramsTANFSocial SecurityUnemployment InsuranceWorkers’ CompensationFood StampsMedical BenefitsEducation Funding (Title I, Head
Start)
The End