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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