Chapter 3
American Free Enterprise
Features of American Free
Enterprise
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Economic Freedom
Competition
Private Property
Self-Interest
Contracts
Voluntary Exchange
Profit Motive
Economic Freedom
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Individuals – work
wherever they choose
Businesses – hire
whomever they
choose
Government –
minimal intervention
Competition
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Producers have an incentive to ‘beat the
competition’
Consumers benefit as a result
Think of one way that each fast food
provider has tried to beat the competition?
Why are the Buffalo almost extinct
and Cows are not?
Private Property
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Individuals and
businesses can buy
and sell property and
limit its use.
Contracts
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Individuals and
Businesses form
written agreements
that are legally
binding.
Self-Interest
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Consumers and businesses operate to
their own benefit. Their decisions do not
have to please the government, other
consumers, or other producers.
Voluntary Exchange
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Both consumers and
producers gain from
voluntary exchange of
goods/services.
Profit Motive
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Profit is a powerful
incentive that leads
entrepreneurs to
accept the risk of
failure.
Explain what this quote means
“Taxes are what we pay for civilized society”
Oliver W endell Holmes Jr., 1904
Why does the Government Produce
Goods and Services?
Public goods: a good/service that can be
used by many at the same time without
diminishing any one person’s
consumption; it is difficult to exclude
someone from the good.
What services does the Government
provide to the American People?
Public Works
Medicaid/Medicare
Disaster Relief
Unemployment
Welfare
Police, Fire
Education
Roads
Social Security
Public Transportation
Grants
The "free-rider" problem
Definition: person who
avoids paying for a
good or service but
is able to benefit
from that
good/service
Why don’t towns charge
admission for 4th of
July fireworks
displays?
Why does the Government Produce
Goods and Services?
Externalities are defined as third party (or
spill-over) effects arising from the
production and/or consumption of goods
and services for which no appropriate
compensation is paid.
Examples of positive externalities
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Definition: externality
that creates benefits
for people who were
not involved in the
original economic
activity
a beautiful garden on a
busy street
the safer neighborhood
for others that results
from some residents
hiring private security
patrols
What is significant about this
picture? What does it tell you
about private property?
Examples of negative externalities
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Definition: externality
that has a negative
effect, or cost, on
people who were not
involved in the
original economic
activity
include an unmowed
lawn in a suburban
neighborhood, or
automobile exhaust, or
second-hand cigarette
smoke.
Broken Windows Theory
"One unrepaired broken window is a
signal that no one cares, and so
breaking more windows costs
nothing."
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Broken windows policing assumes that
serious crime can be reduced by
strongly enforcing minor crimes.
The "broken window" theory suggests
that neighborhood order strategies such
as those listed below help to deter and
reduce crime.
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Quick replacement of broken windows
Prompt removal of abandoned vehicles
Fast clean up of illegally dumped items, litter and
spilled garbage
Quick paint out of graffiti
Finding (or building) better places for teens to
gather than street corners
Fresh paint on buildings
Clean sidewalks and street gutters
Why does the Government Produce
Goods and Services?
Merit goods: goods/services that have a
social value over and above their utility for
the individual consumer.
What are the benefits of having a good
school in your community?
Examples of Merit Goods
IS THIS AN EXAMPLE OF MERIT
GOOD? WHY OR WHY NOT?