benefits of free enterprise · the american free enterprise system is to carry out its...

Benefits of Free Enterprise

Objectives: • WHAT: Explain the key characteristics of free

enterprise and its vital link to the American economy.

• WHAT: Explain the tension between government regulation and free enterprise.

• WHY: 12.3 (1) Understand how the role of government in a market economy often includes providing for national defense, addressing environmental concerns, defining and enforcing property rights, attempting to make markets more competitive, and protecting consumers' rights.

• WHY: 12.2 (8). Explain the role of profit as the incentive to entrepreneurs in a market economy.

(2Th 3:10) For even when we were

with you, this we commanded you,

that if any would not work, neither

should he eat.

• America is known as the land

of opportunity.

• Advantage of open land, large

reserves of natural resources,

and large talented labor supply

fueled by immigrants.

Key Factor for America’s successful economy:

• America’s tradition of free enterprise.

• The social and political commitment to give people the freedom and flexibility to try out their business ideas

• And compete in the marketplace.

Benefits of Profit Motive:

• Profit motivates business.

• Forces business owners to exercise financial discipline because they are responsible for their success or failure.

• Encourages entrepreneurs to make rational risks.

• Rewards innovation by letting creative companies grow.

• It also improves productivity by allowing more efficient companies to make money.

Key characteristics of free enterprise:

• Open Opportunity: The

principle that anyone can

compete in the market-

place.

• Legal Equality: the

principle that everyone

has the same legal rights.

Key characteristics of free enterprise:

o Freedom to buy and sell

o The right of voluntary exchange

allows people to decide what, when,

and how they want to buy and sell.

o Consumers send a signal to

businesses through their purchasing

choices, telling them what to

produce and what and how to

create or make goods and services.

Property Rights:

• America has a strong tradition of private property.

• The right to own property or to become an entrepreneur are as basic to liberty as freedom of speech or the right to vote.

• The Fifth Amendment guarantees that no person deprived of property without due process of law.

Property Rights:

• Due process clause prevents the

government from taking property

from its owner except when there is

a public reason.

• The right of a government to take

private property for public use is

called eminent domain.

Discussion Question

Eminent Domain Scenario.

What is eminent domain and do you think it

is fair? (Explain in paragraph)

What would you consider a just reason for

eminent domain?

Taxation

• The Constitution also spells out how the government can tax individuals and businesses.

• Congress had the power to tax only in the ways the Constitution allows.

• The Sixteenth Amendment gave Congress the right to set direct taxes based on income.

• Under current law both individuals and corporations must pay federal income tax.

The Role of Government in Marketplace:

• The government’s first role in

the American free enterprise

system is to carry out its

constitutional responsibilities.

• To protect property rights,

contracts, and other business

activities.

The Role of Government in Marketplace:

• Americans have come to expect the government to take other actions to promote public interest.

• Or the concerns of society as a whole.

• Government places some limits on actions of private business for the sake of public interest.

• There is debate on government regulation where it prevents private enterprise from creating more wealth.

• And costs government too much money.

Protecting Consumers: Information

• Congress passed public disclosure laws.

• Which require companies to give consumers important information about the products or services that they offer.

• This can help consumers evaluate the products they are thinking of buying.

• Other laws require businesses to make the information they supply honest and clear.

• This is to protect consumers from false claims.

“Thou shalt therefore keep the commandments, and the statutes, and the judgments, which I command thee this day, to do them…. And the LORD will take away from thee all sickness, and will put none of the evil diseases of Egypt, which thou knowest, upon thee; but will lay them upon all them that hate thee.” Deuteronomy 7:11, 15

“Great peace have they which love thy law: and nothing shall offend them.” Psalms 119:165

What should government regulate?

Stand Up if you agree in the following slides

What should the government regulate?

What should government regulate?

Discussion Question

o Explain in a paragraph in your opinion if government should be more or less active in regulating industry here in America.

o In your opinion, list at least five types of regulations that the Federal Government should have on companies and corporations and explain why these five are important.

Chapter 3:2 Promoting Growth and Stability

Objectives: • WHAT: EXPLAIN How the government

seeks to make the economy stable.

• WHAT: EXPLAIN How innovation and technology aids in the growth of the economy.


• Pro_2:9 Then shalt thou

understand

righteousness, and

judgment, and equity; yea,

every good path.

Government Intervention:

o Government intervenes to influence macroeconomic trends.

o Macroeconomics is the study of economic behavior and decision-making in a nation’s whole economy.

o Microeconomics, is the study of economic behavior and decision-making in small units such as households and firms.

Need for government intervention • Needs of modern society would be difficult to

meet in the marketplace.

• Governments supplies some needs in order to ensure that all members of society can benefit.

• This cannot be accomplished by the private sector.

• To insure all members of society receive a basic education, the government provides public schools, highways, law enforcement etc.

• Governments also play a role in the economy by protecting property rights.

Need for government intervention

• The Fifth and Fourteenth Amendments to the Constitution declare that no person may be deprived of life, liberty, or property without due process of law.

• These amendments protect private property.

• Private Property is owned by individuals or companies and not by the government or the people as a whole.

• Government try to make sure that exchanges in the marketplace are fair.

• Laws requires businesses to give honest information to consumers or block firms from joining together to prevent competition and fix prices.

GDP and Business Cycle:

• GDP = Total Value of Final Goods and Services in a country in a given year.

• GDP goes up when the nation produces more than it did before.

• GDP does down is called contraction.

• GDP going up (growth) and down (contraction) is called a business cycle.

Three Main Goals for Government for the Economy:

• High Employment

(Unemployment at 4 to 6 %)

• Growth

• Stability

The Government’s Role

• To help maintain the country’s

technological advantage, the

government promotes innovation

and invention.

• Federal agencies funds research.

• NASA is the government’s own

research institute where

technology used for space travel

has spun off into commercial uses.

The Government’s Role

• The government also encourages innovation by granting patents and copyrights.

• A patent gives the inventor of a new product exclusive right to produce and sell it for 20 years.

• A copyright grants an author exclusive rights to publish and sell his or her creative works.

• These are incentives for innovation.

Technology and Productivity:

• Improved technology is a

key factor in boosting

productivity.

• Technological progress

has long enabled the

economy of the U.S. to

operate more efficiently.

Technology and Productivity:

• Innovation often leads to

obsolescence, as older products

and processes become out of

date.

• Workers can also be in this

category (e.g., telephone

operator, milk man, etc.).

Discussion Question

o How do you feel about companies cutting

jobs in favor of automation?

o What Jobs do you think will be obsolete in

the next ten years?

• Ecc_5:12 The sleep of a

labouring man is sweet,

whether he eat little or

much: but the abundance

of the rich will not suffer

him to sleep.

POP QUIZ!!!!!!!!!!

Macro or Micro?

Total value of final goods and services in a given year is:

B – GNP A – GDP

C – SNSD D – H1N1

A low unemployment rate is considered:

B – 6 % A – 4 %

C – Both A and B D – None of the Above

CHAPTER 3: SECTION 3: Providing public good

Objectives: • WHAT: EXPLAIN how the government allocates

some resources by managing externalities.

• WHAT: EXPLAIN how government roles in preventing negative externalities.


• WHY: 12.3 (2). Identify the factors that may cause the costs of government actions to outweigh the benefits.

• Pro_2:9 Then shalt thou

understand

righteousness, and

judgment, and equity; yea,

every good path.

What is a public good?

Public good:

• Is a shared good or

service for which it would

be inefficient or impractical

to make consumers pay

individually.

• And to exclude those who

did not pay.

Public good:

• Any number of consumers can

use them without reducing the

benefits to a single consumer.

• For the most part, increasing the

number of consumers does not

increase the cost of providing the

public good.

Public good:

• Infrastructure is an example of a

public good.

• Infrastructure are basic facilities

necessary for society to function

and grow.

• Examples include roads, bridges,

electrical grids, sewage systems.

Costs and Benefits: • Costs and benefits are critical in

determining whether something gets produced as a public good.

• The cost of government providing a public good is often paid through increased taxes.

• Increased taxes can cause citizens less money from their income to spend and invest in goods and services.

Costs and Benefits (Two Criteria)

1. The benefit to each individual is

less than the cost that each

would have to pay if it were

provided privately.

2. The total benefits to society are

greater than the total cost.

Costs and Benefits:

• As long as the benefit is for all

people that gain exceeds total

cost.

• It makes sense for the

government to fund the project.

FREE-RIDER PROBLEM • Is someone who would not be

willing to pay for certain good or service.

• But would get the benefit of it anyway, if it were provided as a public good.

• Unlike consumers in the free market, free riders consumes what they do not directly pay for.

What are examples of public goods?

o Go on online and copy and paste in a

word document or key note visual

descriptions of public goods that the

government provides. Find at least five.

Public Good: National Defense • The Federal Government is responsible

for the defense of the nation. • Because the United States is a global

superpower, in faces hostile threats to the security of the nation.

• The United States spent $718 Billion on Defense in 2019.

• Economists and politicians use the term “guns or butter” to describe one of the common choices facing governments.

• The choice between spending money on military or domestic needs.

Externalities:

• Is an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume.

• Externalities may be either positive or negative.

What is positive and negative externalities?

Get in your groups and create skits

for the following: o Free Rider Problem

o Positive externalities

o Negative externalities

Positive Externalities: • Both individuals and businesses

can create positive externalities.

• A corporation can hire underprivileged teenagers and trains them in coding.

• These newly trained workers can be hired by other companies, who benefit without paying for them to be trained.

NEGATIVE EXTERNALITIES: • Is generating unintended costs,

called negative externalities.

• Negative externalities cause part

of the cost of producing a good

or service to be paid for by

someone other than the

producer.

NEGATIVE EXTERNALITIES: • A factory dumps chemical waste

into a nearby river, making it unhealthy.

• The city is forced to install special equipment at its water treatment plant to clean up the chemicals.

• The community, not the polluter, is paying the cost of cleaning up the river.

GOVERNMENT GOALS:

• The government may take

action to create positive

externalities. For example,

funding education.

• (The government aims to limit

negative externalities, such as

pollution).

GOVERNMENT GOALS: • Laws and regulations passed require

cars to have antipollution devices.

• The Environmental Protection Agency

offers incentives to power-plant

operators to put “scrubbers” on their

smokestacks to cut emissions.

• These actions transfer costs of pollution

back to its producers.

GOVERNMENT GOALS: • Strict regulations increases costs for

corporations and private businesses.

• Economists argue that it ties the hand

of businesses by requiring specific

solutions rather than encouraging

innovation.

Goals in Conflict: • Sometimes goals can be in conflict.

• Added regulation on the environment may prevent companies economic freedom to make money.

• Government spending money to provide health care for all their citizens,

• May slow economic growth because of the increase of taxes.

Discussion Question

o With global warming becoming more of a

problem, do you think governments need

to pass stronger laws to force companies

to change their practices? Or should it be

voluntary?

Chapter 7:4 Regulations and Competition

o WHAT: Explain how firms try to increase their market power.

o WHAT: Explain three market practices that the government regulates or bans to protect competition.

o WHAT: Define regulation, and list its effects on several industries.

o WHY: 12.3 (1) Understand how the role of government in a market economy often includes providing for national defense, addressing environmental concerns, defining and enforcing property rights, attempting to make markets more competitive, and protecting consumers' rights.

Isa_55:1 Ho, every one that

thirsteth, come ye to the waters,

and he that hath no money;

come ye, buy, and eat; yea,

come, buy wine and milk without

money and without price.

Regulations and Deregulations

o Markets dominated by one firm or a few large ones tends to have higher prices and lower output than markets with many sellers.

o Competition is reduced.

o This is called a monopoly.

o To control prices and output like a monopoly, the leading firms in a market can merge with one another, form a cartel, or set the market price below their costs for the short term to drive competitors out of business.

o The last practice is known as predatory pricing.

Government and Competition:

o The Federal Government has a number of policies that keep firms from controlling the price and supply of important goods.

o If a firm controls a large share of a market.

o The Federal Trade Commission and the Department of Justice’s Antitrust Division will watch the firm closely to ensure that it does not unfairly force out its competitors.

Sherman Antitrust Act (1890)

o Law passed by Congress which outlawed mergers and monopolies that limit trade between states.

o This law and other laws gave the government the power to regulate industry.

o To stop firms from forming cartels or monopolies.

o To break up existing monopolies.

o Over the years, Congress passed new laws to outlaw other anticompetitive practices.

Government and Competition:

o Despite these laws, companies have used many different strategies to get ahead.

o Some firms require customers who buys one product to buy other products from the same company.

o Whether or not the customers wants them.

o For example, a tennis shoe manufacturer can demand a chain also buy and resell their apparel along with the tennis shoes.

o Buying out competitors is another strategy.

Regulating Business Practices:

o The government has the

power to regulate all of these

practices.

o They do not want to allow too

much power to a company

that already has few

competitors.

Discussion: o In 2008, during the economic crisis, American

automakers were about to be bankrupt along with several major banks. The Government stepped in and gave them significant amounts of money to “bail them out” so they would not go out of business. Do you think the government should have let them out of business because of their own mismanagement or do you think the government was right to help these corporations?

Block Mergers:

o Government can either break up

existing monopolies or they can block

mergers.

o The government does this by blocking

mergers that might reduce competition

and lead to higher prices.

o A merger occurs when a company

joins with another company or

companies to form a single firm.

Block Mergers:

o Price often fall when the number

of firms in a market increases.

o The reverse is also true.

o Prices often rise when the number

of firms in market falls.

Preserving Incentives:

o While some mergers hurt consumers by reducing competition others can actually benefit consumers.

o In these cases, corporate mergers will lower overall average costs and lead to lower prices, more reliable product or service, and a more efficient industry.

o The government must act carefully to make the right decision.

• The work of the people of God is to prepare for the events of the future, which will soon come upon them with blinding force. In the world gigantic monopolies will be formed. Men will bind themselves together in unions that will wrap them in the folds of the enemy. A few men will combine to grasp all the means to be obtained in certain lines of business. Trades unions will be formed, and those who refuse to join these unions will be marked men.--Letter 26, 1903. {CL 10.3}

Deregulation

o In the late 1970s and 1980s, Congress decided that some government regulation was reducing competition.

o It passed laws to regulate several industries.

o Purpose was to promote competition, but has mixed results.

o For example Airlines have increased prices.

Discussion:

o Do you think governments should break

up monopolies or should they leave

them alone and let the smaller

businesses be driven out of business

with only large ones remaining in sort of

an economic survival of the fittest?

Chapter 3:4: Safety Nets

OBJECTIVES • WHAT: Explain the government role

in addressing issues of those who are in poverty.

• WHAT: Explain possible solutions in addressing poverty both through the government and through the private sector.

• WHY: 12.3 (2). Identify the factors that may cause the costs of government actions to outweigh the benefits.

• Deu_24:14 Thou shalt not

oppress an hired servant

that is poor and needy,

whether he be of thy

brethren, or of thy

strangers that are in thy

land within thy gates:

Discussion Question

How Do You Define Poverty?

THE POVERTY PROBLEM • Poverty threshold, an income

level below that which is needed to support families.

• It is determined by the Federal government and adjusted periodically.

• It sets it at different levels, depending on the number of family members and their ages.

THE GOVERNMENT ROLE • The government tries to provide a

safety net for people in these groups.

• With help from various federal, state, and local governments programs such as welfare (e.g., public housing, food stamps etc.)

• There is growing complaints that some people are exploiting these programs.

THE GOVERNMENT ROLE • An example of a safety net is

welfare.

• Welfare is a general term that

refers to the government aid for

the poor.

• It includes many programs that

redistribute wealth from some

people to others.

Cash Transfers: • State and governments provide

cash transfers, direct payments

of money to poor, disabled, or

retired people.

• Social Security, unemployment

insurance, and workers

compensation are examples.

In-Kind Benefits:

• Government provides poor

people with in-kind benefits.

• Goods and services provide for

free or at greatly reduced prices.

• Food stamps

• Subsidized housing

• Public Defender Attorneys.

Discussion Question

o How do you feel about a superstar rap

artist still using welfare to his advantage?

o What do you think the government can do

to prevent people who do not need welfare

from getting welfare?

Medical Benefits:

• Medicare: U.S. Government

provides health insurance for the

elderly over the age of 65.

• Medicaid: Covers some people

who are unemployed or not

covered by their employer’s

insurance plans.

Education:

• Federal, state, and local

governments all provide

educational opportunities to those

who need aid.

• This helps the nation’s human

capital and labor productivity.

The Cost:

• Many safety net programs are expensive to sustain.

• To fund these programs, the Federal Government may have to raise taxes.

• Taxes can be deducted from the income of citizens and profits of corporations.

• That may cause less money to be spent on goods and services that help the economy.

Encouraging Private Action:

• In addition to provide direct assistance to the needy, federal and state governments also encourage private action.

• Federal tax laws allows both individuals and corporations to take tax deductions for charitable donations.

• This policy provides an economic incentive to give money and property to relief organizations and other non-profit groups such as churches.

Encouraging Private Action:

• The government also may provide

grants and other assistance to organize

that provide social services.

• A grant is financial award given by a

government agency to a private

individual or group in order to carry out

a specific task.

Discussion Question

o List five solutions or programs you would

implement to combat poverty.

o Gather in teams and develop a program to

combat poverty.

Spiritual Solution To Poverty • There are not many, even among

educators and statesmen, who comprehend the causes that underlie the present state of society. Those who hold the reins of government are not able to solve the problem of moral corruption, poverty, pauperism, and increasing crime. They are struggling in vain to place business operations on a more secure basis. If men would give more heed to the teaching of God's word, they would find a solution of the problems that perplex them. {9T 13.3}

Spiritual Solution To Poverty • We are all woven together in the

great web of humanity, and

whatever we can do to benefit

and uplift others will reflect in

blessing upon ourselves. The law

of mutual dependence runs

through all classes of society.

{CSA 62.8}

Spiritual Solution To Poverty • If men today were simple in their

habits, living in harmony with nature's laws, as did Adam and Eve in the beginning, there would be an abundant supply for the needs of the human family. There would be fewer imaginary wants, and more opportunities to work in God's ways. But selfishness and the indulgence of unnatural taste have brought sin and misery into the world, from excess on the one hand, and from want on the other. {DA 367.1}

Spiritual Solution To Poverty • In the professed Christian world

enough is expended for jewels

and needlessly expensive dress

to feed all the hungry and to

clothe the naked. Fashion and

display absorb the means that

might comfort the poor and the

suffering.{MH 287.4}

Spiritual Solution To Poverty • Real charity helps men to help themselves.

If one comes to our door and asks for food, we should not turn him away hungry; his poverty may be the result of misfortune. But true beneficence means more than mere gifts. It means a genuine interest in the welfare of others. We should seek to understand the needs of the poor and distressed, and to give them the help that will benefit them most. To give thought and time and personal effort costs far more than merely to give money. But it is the truest charity. {CSA 62.3}

Spiritual Solution To Poverty • Attention should be given to the

establishment of various industries so that poor families can find employment. Carpenters, blacksmiths, and indeed everyone who understands some line of useful labor, should feel a responsibility to teach and help the ignorant and the unemployed. {CSA 62.4}

Spiritual Solution To Poverty • Those who are taught to earn

what they receive will more

readily learn to make the most of

it. And in learning to be self-

reliant, they are acquiring that

which will not only make them

self-sustaining, but will enable

them to help others. {CSA 62.6}

• The Lord would place a check upon the inordinate love of property and power. Great evils would result from the continued accumulation of wealth by one class, and the poverty and degradation of another. Without some restraint the power of the wealthy would become a monopoly, and the poor, though in every respect fully as worthy in God’s sight, would be regarded and treated as inferior to their more prosperous brethren. The sense of this oppression would arouse the passions of the poorer class. There would be a feeling of despair and desperation which would tend to demoralize society and open the door to crimes of every description. The regulations that God established were designed to promote social equality. The provisions of the sabbatical year and the jubilee would, in a great measure, set right that which during the interval had gone wrong in the social and political economy of the nation." (Patriarchs & Prophets, p. 534)

Discussion Question

o Do you think Ellen White’s solution to

poverty can be practically applied today?

Chapter 15:2: Fiscal Financial Policies

Objectives: o WHAT: Compare and contrast

classical economics and Keynesian economics.

o WHY: 12.3 (1) Understand how the role of government in a market economy often includes providing for national defense, addressing environmental concerns, defining and enforcing property rights, attempting to make markets more competitive, and protecting consumers' rights.

• Lev_25:35 And if thy brother

be waxen poor, and fallen in

decay with thee; then thou

shalt relieve him: yea, though

he be a stranger, or a

sojourner; that he may live

with thee.

Classical Economics: o Free markets regulate itself and it will fix

itself back to equilibrium.

o Adam Smith was one of the leading advocates.

o The Great Depression challenged this theory that the market could correct itself.

o It highlighted a problem with classical economics, it did not address how long it would take for the market to return to equilibrium.

Keynesian Economics: o British economist John Maynard

Keynes developed a new theory of economics to explain the Depression.

o Keynes looked at the production capacity of the entire economy.

o This is full-employment output, or the maximum output that an economy can sustain over a period of time without increasing inflation.

Inflation:

o The value of cash in person’s

pockets decreases from day to

day as prices rise.

o Over many years, inflation has

reduced the value of the dollar.

o However a good will continue to

hold its value, provided it can be

stored for a long period of time.

A Broader View: o Keynes argued that the Depression was

continuing because neither consumers nor businesses had an incentive to spend enough to cause an increase in production.

o After all, why would a company spend money to increase production when the demand for its products was falling?

o How could consumers significantly increase demand they had barely enough money to survive?

A Broader View: o The only way to end the Depression,

Keynes thought would be to find a way to boost demand (demand-side economics).

o Keynes thought that the spender should be the federal government.

o The government could in effect make up the drop in private spending by buying goods and services on its own and this would encourage production and increased employment.

A New Role for Government:

o Then as people went back to

work, they would spend their

wages on more goods and

services and leading to even

higher levels of production.

o Once the crisis was over, the

government could then step

back and reduce its spending.

A New Role for Government: o Keynesian economics proposes

that the government can, and should, use fiscal policy to help the economy.

o Keynes argued that fiscal policy can be used to fight the two fundamental macroeconomic problems.

o Periods of recession and periods of inflation.

Recession:

o When goods and services falls for at least six straight months.

o Earnings of major corporations decrease and unemployment increases.

o Unemployment are typically at 6 to 10 percent.

o Generally lasting six to 18 months.

A New Role for Government: o The Federal Government should

keep track of the total level of spending by consumers, businesses, and government.

o If total spending begins to fall far below the level required to keep the economy running at full capacity, the government should watch out for the possibility of recession.

A New Role for Government: o The government can respond by the

threat of recession by increasing its own spending until spending by the private sector returns to a higher level.

o Or it can cut taxes so that spending and investment by consumers and businesses increases.

o (FDR’s New Deal) Federal Government begin creating new jobs through government programs.

A New Role for Government:

o Today the Republicans

generally have been associated

with using tax cuts to stimulate

the economy.

o Democrats, generally, have

favored more expansive

government programs to

stimulate the economy.

Controlling Inflation:

o To control inflation, Keynesian

economics advocate that the

government can reduce inflation

either by increasing taxes or by

reducing its own spending.

o Both of these actions decrease

overall demand.

Supply Side Economics:

o Is based on the idea that the supply of goods drive the economy.

o The basis is that lowering taxes will increase consumer spending and production.

o Higher taxes negatively impact economic output.

o Democrats are opposed to supply-side economics.

Supply Side Economics:

o The heart of the supply-side

argument is that a tax cut

increases total employment.

o So much that the

government actually collects

more in taxes at the new

lower tax rate.

Arthur Laffer’s Laffer Curve o Curve illustrates the Supply Side Perspective.

o The Curve shows the relationship between the tax rate and total revenue the government collects.

o The Curve suggests that high tax rates may not bring in much government revenue if they cause economic activity to decrease.

o The curve suggests that lowering taxes increases employment.

o More people working and earning money can pay taxes.

o The government can collect more revenue at a lower tax rate.

ACTIVITY

Explain to what extend, the government should be involved in the economy.

benefits of free enterprise · the american free enterprise system is to carry out its...

Documents