CHAPTER 3: AMERICAN FREE ENTERPRISE

S.1: Benefits of Free Enterprise

S.2: Promoting Growth and Stability

S.3: Providing Public Goods

S.4: Providing a safety net

INTRODUCTION

What are the benefits of free enterprise? Makes it possible for

people who have ideas & persistence to start businesses and find success

Offers great deal of economic freedom to consumer

WHAT IS FREE ENTERPRISE?

U.S. considered to be “land of opportunity” American tradition of Free Enterprise has been

key supporter of this Characteristics

Profit motive: Key incentive; all decisions are made w/ idea of increasing profit

Open opportunity: Anyone can participate in market

Legal Equity: Everyone has same legal rights….now..

Private Property: Own decisions about own property

Freedom to buy/sell: Own decisions about entering agreements, and what/when/how to buy/sell

ROLE OF THE CONSUMER

Freedom to make own economic choices Voluntary exchanges

happen so businesses know what and how much to produce

Interest groups Consumers can join

them to encourage public officials to act in ways to benefit them

ECONOMIC FREEDOM & CONSTITUTION

Free enterprise is written into the constitution 5th Am.: Protects private

property from being taken w/out due process Even though govt. can take land

for public reason Eminent Domain: but have to

pay fair price Spells out how govt. can tax

people/businesses Art. I: Congress can levy taxes

Income tax didn’t happen till 16th am.

Guarantees people/businesses right to make contracts

ROLE OF THE GOVT. IN MARKETPLACE

Govt. has many roles Carrying out constitutional responsibilities to

protect rights, contracts, and other business activities

Making sure that producers provide consumers with information

Protecting the health, safety, and well-being of consumers

NEGATIVE EFFECTS OF REGULATION

Rules are costly to implement

Regulations stifle competition

Govt. spending increased in industries b/c have to hire workers to do actual oversight

MAJOR FEDERAL REGULATORY AGENCIES

How do you think the FCC promotes the public interests? Making sure broadcast

communication conforms to standards so consumers can receive signals

Identify one agency set up to protect Public Safety

FDA FAA CPSC

Fair competition FTC FDIC

Equality EEOC

3.2: PROMOTING GROWTH/STABILITY

“How does U.S. Govt. promote growth/Stability?” top of notes

Learning objectives Why govt.s track and seek to influence business

cycles How the gov.t promotes economic strength What factors increase productivity

Key Terms http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-3

69833-5/Flash/Ch03/Econ_OnlineLectureNotes_ch3_s2.swf

INTRODUCTION

How does the U.S. Govt. encourage growth/stability? Tracking Business

Cycles Promoting High

employment Keeping prices stable Encouraging

development of new technologies

Pride in American Work ethic

TRACKING BUSINESS CYCLES

Govt. often intervenes to influence macroeconomic trends

One measurement of well-being is GDP Gross Domestic Product

Measurement of total goods/services produced in year Business Cycle: pattern of expansion followed by

contraction Expansion

GDP goes up Contraction

GDP goes down

Why do govt experts track the business cycle? So they can see where country is and make

predictions

PROMOTING ECONOMIC STRENGTH High Employment

Govt. works to ensure jobs for everyone available 4-6% unemployment is healthy

Economic Growth To help spur growth, govt. can cut taxes or increase spending

Stability and Security One indicator can be price levels, another is banks/financial

institutions Government looks to prevent sudden shifts in prices to avoid

consumer/producer suffering Govt. Regulations seek to keep banks/financial inst.’s stable;

think bailout!! Economic Citizenship

Voters have a say in promoting economic strength by: Voting for public officials Voting on referendums

TECHNOLOGY AND PRODUCTIVITY How does tech improvement

help economy? Allows economy to operate more

efficiently Helps increase productivity

Light bulb made longer workdays

Assembly line: mass production

Govt.s promote innovation/invention to maintain a technological advantage by: Funding R & D projects @

universities Est. own research institutions:

NASA Grant patents/copyrights,

incentives to innovation

AMERICAN WORK ETHIC

Growth cannot occur w/out indiv. Effort Americans have pride in

strong work ethic, not only ethic but the work they do

Work ethic has long been seen as a key ingredient in U.S.’s success

SECTION 3

Bell Work: During Europe Video over Unemployment

Copy down chart on pg. 62

Fill in chart from pg. 56

Finish 23, 108 from Workbook

SECTION 3

“Why does a society provide public goods?”

Objectives Examples of Public Goods Understand market failures How govt.s allocate resources to manage

externalities Key Terms

http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch03/Econ_OnlineLectureNotes_ch3_s3.swf

INTRODUCTION

Why does a society provide public goods? B/C it would be

inefficient/impractical for a free market to provide them

PUBLIC GOODS

Shared good/service that would be inefficient/impractical to make consumers pay for or to exclude those who can’t

Maintaining Streets is one example Signs, lights, conditions, etc.

Used by any # of people w/out reducing its benefits

Financed by public Police, firefighters, etc.

PUBLIC GOODS: COSTS/BENEFITS

What 2 Criteria must be present for a public good? Benefit is less than

cost each individual would have to pay if privately provided

Total Benefits to society are greater than total cost

PUBLIC GOODS: COSTS/BENEFITS

Govt. pays for public goods through……. Taxes

Financial burden become much less than if private funded

PUBLIC GOODS: FREE RIDER PROBLEM

“Free Riders” People not willing to pay for certain good/service but

would benefit from its offering as public good Government stops providing public good

Instead relying on “donations/contributions Some people would “refuse” to pay and many services would

be eliminated

Examples National Roads

Pay for a road in Florida/Texas? RIGHT!! But you would benefit from easier trucking routes/vacations

Firefighting Not everyone would pay for fire protection. Neighbors could spread to yours and they don’t pay for it?

Provided as public good!

MARKET FAILURES: READ SECTION

Why are public goods an example of market failure? Shows where the free

market does not distribute resources efficiently Example: Building roads.

How many people could afford to privately pay for road usage and to build roads

EXTERNALITIES: ECONOMIC SIDE-EFFECTS

Positive Externalities Benefits of public

goods Allow someone who

didn’t purchase a good to enjoy part of benefits

Negative Externalities Cause part of the cost

of producing good/service

Paid by someone other than producer

Look at 3.3 pg. 66 Answer 2 ?s

GOVERNMENT GOALS

Understanding externalities helps us see the roles that govt. plays in U.S. economy Takes action to create positive externalities

Improving education Takes actions to limit negative externalities

Pollution, health issues.

Many economists feel the private sector produces more pos. externalities than the govt. “With less” regulation companies wouldn’t eat as

much money in costs meeting them, but would also be encouraged to find their own methods of better meeting broad requirements. Just an argument though, pros/cons for each side

SECTION 4Bell Work

Finish Chart from Section 3

Copy Chart from Section 4

Create 10 Vocab cards that you can quiz a partner on later. Use sheets in front. Due tomorrow

S.4: PROVIDING A SAFETY NET

“How does Government help the poor?”

Objectives Understand U.S. debate on ways to fight poverty See main programs to redistribute wealth How govt. encourages private efforts to help

needy Key Terms

http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch03/Econ_OnlineLectureNotes_ch3_s4.swf

INTRODUCTION

How does the government help the poor? To help the poor govt. programs take money

from some people and redistribute it to others Program examples:

Welfare system Cash transfers In-kind benefits Medical Benefits Educational benefits Grant Money

POVERTY PROBLEM

Problem Free markets create uneven wealth distribution Poverty “threshold” is set based on the cost of

goods a family NEEDS to buy Governments Role

Provides a safety net to groups through federal, state, and local govt. programs Young, old, sick, poor, disabled

Welfare Program Collects funds from taxpayers to redistribute money to

needy Began during……?

Great Depression

WELFARE REFORM

Critics of welfare Claim it discourages productivity and furthers

poverty 1996 new reforms limited amount of time people

could receive welfare Also gave states more freedom to experiment w/anti-

poverty programs

REDISTRIBUTION PROGRAMS Cash Transfer Programs

(TANF) Temporary Assistance for Needy Families Welfare payments to states who run

own programs Social Security- Collects money

from current workers and redistributes to retired/disabled people

Unemployment Insurance- Provides $$ to workers who lost jobs; need to proof making effort to work Temporary: 26 weeks in most states

Workers compensation- Provides state funds to workers injured on the job

IN-KIND BENEFITS

Govt. provides poor people w/ benefits Food stamps

Assistance for food Subsidized housing

Less $ for rent Legal aid

No charge legal advice

MEDICAL AND EDUCATIONAL BENEFITS

Govt. provides health care to….. Elderly (Medicare) Disabled/poor (Medicaid) Uninsured children (SCHIP)

Govt. funds educational programs from pre-school to college Cheaper State colleges, reduced lunch, free-

preschool

ENCOURAGING PRIVATE ACTION

How does tax law provide an incentive to help the needy? Read section on pg. 72 Federal tax laws allow individuals/corporations

tax deductions for charities Government can also provide grants/other

assistance to organizations that provide social services