Capitalism Capitalism and and

Free EnterpriseFree Enterprise

What is capitalism?What is capitalism?

The United States’economic The United States’economic system in which private citizens system in which private citizens own & use the factors of own & use the factors of production to make a profit.production to make a profit.

What is free enterprise?What is free enterprise?

(another name to explain the (another name to explain the U.S. economy)U.S. economy)

Competition is allowed w/ Competition is allowed w/ minimum govt. interferenceminimum govt. interference

Several unique features of capitalism Several unique features of capitalism combine to contribute to its success combine to contribute to its success in the U.S. and in other countries.in the U.S. and in other countries.

These features are the These features are the use of markets, use of markets, economic freedom, economic freedom, private property rights, private property rights, competition, competition, profit motive, profit motive, and voluntary exchange.and voluntary exchange.

MarketsMarkets

What two things do markets do?What two things do markets do?

Prices are setPrices are set Goods are exchangedGoods are exchanged Types of marketsTypes of markets

Local Local RegionalRegional NationalNational globalglobal

When you go to work, When you go to work, your labor is being sold in the your labor is being sold in the

factor market.factor market.

When you go shopping, When you go shopping,

the goods & services you buy the goods & services you buy are being purchased in the are being purchased in the product market.product market.

Under our economic system, why Under our economic system, why is the consumer important?is the consumer important?

b/c businesses usually try to b/c businesses usually try to produce the products that produce the products that consumers want the mostconsumers want the most

Explain what consumer sovereignty Explain what consumer sovereignty means.means.

That the consumer is the “king” That the consumer is the “king” or “ruler” of the market b/c the or “ruler” of the market b/c the consumer is basically consumer is basically determining what kinds of determining what kinds of products are being made.products are being made. Example: If nobody buys a Example: If nobody buys a

particular product, would the particular product, would the producer continue to sell it? No!producer continue to sell it? No!

Economic Economic FreedomFreedom

In the United States, we place In the United States, we place a high value ona high value on

the freedom to own and make the freedom to own and make our own economic decisions! our own economic decisions! Choice of jobChoice of job Choice of when/where we’d like to Choice of when/where we’d like to

workwork In some countries, the govt. In some countries, the govt.

makes these decisions! makes these decisions!

In our type of economy,In our type of economy,

consumers have the right to consumers have the right to choose the products we buy.choose the products we buy.

ANDAND

businesses have the right to businesses have the right to choose the types of products choose the types of products they will offer to sale.they will offer to sale.

Private Private Property Property

RightsRights

Explain our private property rights Explain our private property rights (another feature of capitalism).(another feature of capitalism).

We have the right to own, use, We have the right to own, use, or dispose of our own property or dispose of our own property as long as it doesn’t interfere w/ as long as it doesn’t interfere w/ the rights of others.the rights of others.

Why are our private property rights Why are our private property rights an incentive?an incentive?

It gives us the incentive to work, It gives us the incentive to work, save, and invest because we save, and invest because we know we can keep any know we can keep any gains/profits that we might earn!!gains/profits that we might earn!!

$$$$$$$$$$$$

CompetitionCompetition

What is competition?What is competition?

The struggle b/t buyers & sellers The struggle b/t buyers & sellers to get the best products at the to get the best products at the lowest prices.lowest prices.

Competition rewards the most Competition rewards the most efficient producers b/c more efficient producers b/c more ppl. buy their products.ppl. buy their products.

Competition forces the least Competition forces the least efficient producers out of efficient producers out of business if they are unable to business if they are unable to compete w/ other productscompete w/ other products

Competition results inCompetition results in

Efficient productivity (more Efficient productivity (more goods are sold)goods are sold)

High quality productsHigh quality products Satisfied customersSatisfied customers

The The Profit Profit

MotiveMotive

Why do people take the risks of Why do people take the risks of opening a business?opening a business?

The hopes of making a profit!The hopes of making a profit!

What is profit?What is profit?

The amount of money left after The amount of money left after all fixed & variable costs have all fixed & variable costs have been paid.been paid.

Voluntary Voluntary ExchangeExchange

What is voluntary exchange?What is voluntary exchange?

The act of buyers & sellers The act of buyers & sellers freely and willingly engaging in freely and willingly engaging in market transactions.market transactions. The buyer benefits b/c they get The buyer benefits b/c they get

the product.the product. The seller benefits b/c they get the The seller benefits b/c they get the

money.money.

The The History History

of of CapitalismCapitalism

In Adam Smith’s In Adam Smith’s Wealth of NationsWealth of Nations, ,

he believed that if individuals were he believed that if individuals were left on their own, they would left on their own, they would

work for their own self-interest; as work for their own self-interest; as a result, they’d be guided by an a result, they’d be guided by an “invisible hand” to use resources “invisible hand” to use resources

efficiently.efficiently.

Smith also believed in Smith also believed in “laissez-faire” economics.“laissez-faire” economics.

What does that French term mean?What does that French term mean?

““to let alone” to let alone”

What was the govt.’s role in “laissez-What was the govt.’s role in “laissez-faire” economics?faire” economics?

• not to interfere in the not to interfere in the marketplace!!marketplace!!

• only create/allow competitiononly create/allow competition