BR BR

What does a circular flow diagram What does a circular flow diagram show? (page 29-30)show? (page 29-30)

What is the difference in factor and What is the difference in factor and product market? (page 30)product market? (page 30)

Review, Discussion Last Class

1. Circular Flow diagram of free market

2. Compare/Contrast Adam Smith and Karl Marx

3. Economic Sytems/ Big 3 Questions every society must ask itself.

Today’s Objectives:

1. Explain the basic principles of the Explain the basic principles of the U.S. free enterprise system.U.S. free enterprise system.

2.Explain the roles that 2.Explain the roles that Entrepreneurs, Consumers, and the Entrepreneurs, Consumers, and the Government has in the Free Government has in the Free Enterprise SystemEnterprise System

Free EnterpriseFree Enterprise

Free Enterprise- the social and political Free Enterprise- the social and political commitment to giving people the freedom commitment to giving people the freedom and flexibility to try out their business ideas and flexibility to try out their business ideas and compete in the market place.and compete in the market place.(more detailed definition on p.43)

How has this system brought wealth and advancement to our nation? Lets look at some examples.

Who are these people?Who are these people?

John D. Rockefeller:John D. Rockefeller:

Andrew Carnegie:Andrew Carnegie:

Bill Gates: Bill Gates:

John D. Rockefeller: founder of Standard Oil John D. Rockefeller: founder of Standard Oil of New Jerseyof New Jersey

Andrew Carnegie: Started Carnegie Steel Andrew Carnegie: Started Carnegie Steel CompanyCompany

Bill Gates: Founder of Microsoft Bill Gates: Founder of Microsoft

They have made themselves into the They have made themselves into the richest people of their time, helped fuel richest people of their time, helped fuel the economy, and contribute vast sums the economy, and contribute vast sums of money to programs and charities for of money to programs and charities for the public good. the public good.

America Today America Today

Today, there are over 18 million Today, there are over 18 million unincorporated businesses in America.unincorporated businesses in America.

Many were started by a single Many were started by a single entrepreneur or small group of friends entrepreneur or small group of friends hoping to earn a living and some turn hoping to earn a living and some turn out to be very successful. out to be very successful.

America- Land of Opportunity?America- Land of Opportunity?

What does this mean?What does this mean?

For centuries, people have considered For centuries, people have considered America to be a “land of opportunity”- a America to be a “land of opportunity”- a place where anyone from any place where anyone from any background can achieve success background can achieve success through hard work. through hard work.

Why has America been such Why has America been such an economic success?an economic success?

Besides the open land and natural Besides the open land and natural resources, a key factor has also been resources, a key factor has also been the American tradition of free the American tradition of free enterprise.enterprise.

Characteristics of Free EnterpriseCharacteristics of Free Enterprise

Economic Freedom (page 53)Economic Freedom (page 53)– Individuals as well as businesses enjoy Individuals as well as businesses enjoy

this freedom to make decisions. (What this freedom to make decisions. (What decisions?)decisions?)

Voluntary Exchange (page 53) Voluntary Exchange (page 53) –The buyer and seller freely engage in the The buyer and seller freely engage in the

market transactionmarket transaction

Characteristics ContinuedCharacteristics Continued Private Property (page 52) Private Property (page 52)

–People have the right and privilege to People have the right and privilege to control their possessions as they wishcontrol their possessions as they wish

–Private property gives people the Private property gives people the incentive to work, save, and invest.incentive to work, save, and invest.

Profit Motive (page 52) Profit Motive (page 52) –People are free to risk their savings People are free to risk their savings

for the possibility of financial gainfor the possibility of financial gain

Role of the EntrepreneurRole of the Entrepreneur

One of the most important parts of our One of the most important parts of our economy are entrepreneurs.economy are entrepreneurs.

Entrepreneur organizes and manages Entrepreneur organizes and manages land, labor and capital in order to seek land, labor and capital in order to seek profitprofit

Role of the ConsumerRole of the Consumer

We as consumers have power because We as consumers have power because we determine which products are we determine which products are ultimately produced.ultimately produced.

Consumer sovereignty describes the Consumer sovereignty describes the role of the consumer as sovereign ruler role of the consumer as sovereign ruler of the market.of the market.

Role of the GovernmentRole of the Government

1. 1. Protector Protector enforces laws such as those enforces laws such as those against false and misleading information, against false and misleading information, impure food and drugs, environmental impure food and drugs, environmental hazards and unsafe autos.hazards and unsafe autos.

– Enforces laws against individual freedomsEnforces laws against individual freedoms 2. 2. Provider and ConsumerProvider and Consumer - All levels of - All levels of

government provide goods and services for government provide goods and services for citizens.citizens.

Role of the government Role of the government (continued)(continued)

3. 3. RegulatorRegulator- Is charged with preserving - Is charged with preserving competition in the market place. competition in the market place.

4. 4. Promoter of National Goals Promoter of National Goals Functions of Functions of government reflect people desire to modify government reflect people desire to modify the economic systems to achieve the the economic systems to achieve the economic goals of freedom, efficiency, economic goals of freedom, efficiency, equity, full employment and economic equity, full employment and economic growth.growth.(p.25 chart)(p.25 chart)

JournalJournal

What are the four characteristics that make up the American Free Enterprise System?

Government Bailout QuestionGovernment Bailout Question

Should the government bail out financial institutions?

Should the government have bailed out the big 3 auto makers?

If Adam Smith was alive today what would he say about the bailout?

Why is the government going to do it? Who is going to pay for it?