Chapter 3 Notes: Free Enterprise

18 Million unincorporated businesses in America

Open Land, Natural Resources, and Uninterrupted flow of immigrants with different backgrounds and experiences all contribute…to ECONOMIC SUCCESS.

Open Opportunity- The concept that everyone can compete in the marketplace.

Voluntary Exchange- Allowing people to decide what and when they want to buy or sell something instead of by force.

Basic Principles of Free Enterprise

• Profit Motive

• Open Opportunity– The American Dream

• Economic Rights– Private Property, free contracts, voluntary

exchange

Role of Government• Protect Health, Safety and Well Being, and provide consumers with

information.

Major Regulatory Agenciesi. FDA- Food and Drug Administrationii. FAA- Federal Aviation Administrationiii. EPA- Environmental Protection Agency

More on page 55.

Promoting Growth and Stability

• Macroeconomics-study of the behavior and decision making of entire economies.

• Microeconomics-study of the behavior and decision making of small economic units.– Macro=United States Economy– Micro=A United States average Household

economy.

• To measure the economy’s well-being, you must calculate the nation’s GDP.

• GDP-Gross Domestic Product, equals the total value of all final goods and services produced in an economy.

To stabilize the economy, policymakers must strive for high employment, steady growth, and stable prices.

Another key to a higher GDP is Technology.Better Technology = for more goods generated

in shorter amount of time with less materials.

Providing Public Goods• Public Good- a shared good or service

for which it would be inefficient or impractical (1) to make consumers pay individually and (2) to exclude unwilling participants.– Ex. Roads and Dams

Free Rider- Someone who would not choose to pay for a certain good or service, but would get the benefits of it anyway if it were provided as a public good.

Example- Fire protection for your neighbor’s house

• Side effects of an economy are called Externalities.

• Two types- positive externality and negative

externality

• Positive- Private homeowner buys house and fixes it up from eye-sore to ready to buy.

• Negative- Next-door neighbor takes up the accordion and hosts Friday night polka parties. However, you hate polka music.

Providing Safety Net• Welfare- since 1930s.

– General term referring to government aid for the poor.

Other well known programs.

I. Social Security.

II. Unemployment Insurance.

III. Workers’ compensation.

1) In-Kind Benefits – food stamps, legal aid

2) Medical Benefits- Medicare and Medicaid

3) Education- Federal funding, grants and scholarships