Chapter 3: American Free Enterprise

Transcription

1 Chapter 3: American Free Enterprise Essential Question: What role should play in a economy?

2 Section 1: Benefits of Free Enterprise What is free enterprise? An in which are made in a free market by and.

3 Basic principles of Free Enterprise 1. People respond to incentives in predictable ways. This is a made by economists. It s not being, it s Rewards risk-taking and Encourages making good decisions because each business is responsible for its own

4 Basic principles continued 2. Markets are free and open to everybody Low barriers to entry Allows economic mobility

5 Basic principles continued 3. Everyone has the same The economy can maximize its use of Restrict who can do certain jobs and you are losing and!

6 Basic principles continued 3. Private is protected People have an incentive to use their property or lose.

7 Basic Principles continued 4. Freedom to right of Voluntary

8 The Role of the Consumer Economists assume voluntary exchange Nobody makes and enter the. They voluntarily choose to do so. Consumers send important signals in the marketplace. If no one is buying a product, what can we conclude? If a store can t keep something in stock, what can we conclude?

9 Interest Groups Consumers may choose to join interest groups such as the Consumers Union Many businesses are interest group members

10 Economic Freedom & The Constitution We think of many of our economic rights and freedoms as part of what it means to be American Freedom of Freedom to Legal protection of that property ( ) Eminent Free (easy to enter and leave the marketplace)

11 Role of Government in the Marketplace We have an economic system based on free enterprise, but it s not a totally free market Congress passes laws in the public interest Public health & safety Free (open) access to information Consumer health & safety such as ingredients lists & nutritional information Public disclosure laws Give info about a product to consumers

12 Examples of Government Involvement Major Federal Regulatory Agencies FDA Federal Reserve (The Fed) EPA FAA OSHA EPA See p. 54

13 Are regulations always good? They Protect Protect Protect the But they can also Raise Stifle Raise

14 Section 2: Promoting Growth and Stability Economic transactions are tracked by the government so they have an idea of how quickly or slowly the economy is growing Economics focuses on decisions made that affect the nation s whole economy ( ) AND looks at decisions made by businesses and households ( )

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17 How do we know if the economy is doing well? Tracking the business cycle Is GDP ( ) increasing or decreasing? Is unemployment up or down? Are exports increasing or decreasing? What about the value of the dollar? Economics is a social science

18 Promoting Economic Strength The government works to keep the economy strong in 3 main ways: 1. UNemployment of approximately 5% is considered healthy Government may take steps to create jobs if unemployment is too high 3. and Stable bank stable Economic Citizenship: many of these decisions are made by leaders we elect. Our choices matter and elections have consequences! 2. Is GDP increasing? Should we raise or lower taxes? Should we increase or decrease government spending (monetary policy)

19 Government s Role continued Helps promote technological progress Encourage Laws that, Laws such as the Morrill Land Grant Act Government research such as as that carried out by and the NIH & CDC, etc. Part of the American psyche: American Work Ethic

20 Section 3: Providing Public Goods This is one of the reasons why we have government Some goods & services wouldn t be available if the government didn t provide them such as: Paved roads Bridges Schools (?) Police & fire protection Instead, these are public goods Benefit to each individual is less than the cost that each would have to pay if it were provided privately Total benefits to society are greater than the total cost (sewage system, for example) Why not? Too hard Too hard to who from using the good/service No incentive for the private sector to provide these goods Too Not enough

21 The Free-Rider Problem Do people benefit from public goods who don t help pay for them? YES! They are known as Drivers on interstate highways Public radio (NPR) Public television (PBS) Libraries Public Goods are an example of This is an instance where the market does not distribute resources In the case of public goods, if they were provided by the private sector, you might get People wouldn t have to the good or service (roads not built in rural areas) See p. 65

22 : an economic side effect; people receive benefits or incur costs other than the producer or consumer Can be or Consider some examples A new school built in your community A new prison built in your community A new interstate built in your community

23 Externalities continued Remember that externalities are an example of MARKET, even if they are positive externalities Why? Because the costs (negative) or benefits (positive) are. How does the government play a role? Creates externalities such as Takes steps to limit externalities

24 Section 4: Providing a Safety Net Why do we have? Free enterprise creates wealth, but it is According to the U.S. Census Bureau: In 2013, Median Household income was $ In 2013, the official poverty rate was %, the lowest since 2006 % of children (under 18) live in poverty

25 The government s role Debate over the extent to which it is the job of the government to help the poor Do we have a social responsibility to take care of those who are too old or sick to work? What we think of as the welfare system began to take shape in the 1930s in response to the Great Depression It was then expanded in the 1960s as part of President Lyndon Johnson s War on Poverty Congress passed significant welfare reform in 1996 Lifetime limit on how long you can receive benefits States given more flexibility to design and run their own programs State benefits are different; the rules to qualify vary from state to state and payments, etc. vary from state to state

26 Types of Redistribution Programs What we think of as are redistribution programs because they take wealth from and redistribute it to the 1. One type are cash transfers (money given to states who then give it to individuals to spend) TANF Social Security people people Unemployment Insurance Workers Compensation

27 Types of Redistribution Programs continued 2. Another type of redistribution program are inkind benefits Subsidized housing (Section 8, housing projects) Legal aid (based on the 6 th amendment) 3. Medical Benefits Medicare Medicaid CHIP 4. Education Federal money given to states to pay for pre-k through college Pell Grants, the FAFSA program, etc.