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