CH 3.1 Preserving Economic
Freedoms
How does the government protect Americans’
economic rights
Government policies that serve public interest
Government intervention in protecting public
health, safety, and well being
Protecting the American People

Until around the 1960’s, there was little
regulation of products that could affect
the well being of Americans
–
Businesses could manufacture goods in a
manner that suited their needs over the
public
– Govt started getting involved in public
interest
 Concerns
of the public as a whole
7 Major Features of American
Free Enterprise

1. Economic Freedom - Individuals (where to
work)
–

Businesses can also chose who they hire, what
to produce, how much to produce, how much to
charge
2. Competition - producers have the right to
engage in rivalries to gain business
–
Drives producers to create new and better
products

Creates more choices for consumers
•
3. Private Property - Individuals and
businesses can buy and sell as much
property as they like.
–
Property owners can prohibit others from using
their property
•
4. Contracts - Legally binding agreements
between individuals to buy and sell goods
•
5. Self Interest - Decisions made by both
individuals and businesses to benefit
themselves
•
Do not have to please the govt, other consumers
or producers
•
6. Voluntary Exchange - Consumers
and producers may freely buy and sell
goods when it is worthwhile for them
•
•
Both parties expect to gain from the
exchange
7. Profit motive - Driven for the desire
for profit
•
Profit is a powerful incentive that leads
entrepreneurs and businesses to accept
the risk of business failure
If business is driven solely by profit, there is
no incentive to keep people safe

Regulating industries that affect public safety and
health is one way the govt influences the economy
– This has been an issue through time
 Costs money
 Places limits on business activity
 Limits choice
– Trade off that most Americans are willing to make
on some level
• People are willing to give up some amount of
freedoms to keep society safe
Consumer control in Free
Enterprise
•
1. Through what they buy, consumers tell
producers what to make, how much to make,
and how much to charge
•
•
Consumer Sovereignty
2. By voting, consumers can control the
governments policies regarding the economy
•
The govt responds to public interest issues by
creating public policy
•
Laws and standards on topics of public interest
Public Policy
•
To try to meet a goal, individuals may
join an interest group
A private organization which tries to
persuade public officials to vote according
to what they want done
• Raise funds to campaign for what they
want
• Can be beneficial for the majority, or can
serve the needs of a select group
•
Information
•
Correct information is vital to making
your decision when there are many
goods to choose from
•
Public disclosure laws - companies are
required to give full information about their
products
•
Peanuts!!!
•
Environmental Protection
•
Until the 1960’s there was little control over
the conduct of business
•
•
•
1970 - Environmental Protection Agency
•
•
Pollution of water, land and air
Cuyahoga River, OH
Strict regulations and clean up requirements
How much is too much?
Businesses argue that too much control
limits the profits they can make
• Consumers ask for more protection and
control
•
Protecting Health, Safety and
Well Being
•
Consumer protection
•
•
•
•
Caveat emptor - buyer beware
Lab tests on food, medicine
Labels on food that include expiration dates
Worker health and Safety
•
Occupational Safety and Health Administration
(OSHA)
•
•
Regulations on workplace safety
Information about health threats must be divulged
•
1906 - Food and Drug Administration
•
•
1914 - Federal Trade Commission
•
•
Standards on food, drugs, and
cosmetics
Enforces and enacts antitrust and
monopoly laws
1964 - Equal Employment Opportunity
Commission
•
Promotes equal job opportunity through enforcement of
civil rights laws, education and other programs
•
1970 - Environmental Protection Agency
•
•
Enacts policies to protect human health and the
natural environment
1970 - OSHA
•
Enacts policies to save lives, prevent injuries,
and protect health of workers
Ch 3.2
Providing a Safety Net
How does the US fight poverty
What are some ways the US
redistributes wealth
The Free Market and Poverty

The free market has created more
wealth than any other economic
system
–
Wealth is not shared equally
 Many
people live below the poverty
threshold
–
Income level below what is necessary to support
families or households
40% of the world’s wealth is owned by 1% of the population
85% is owned by 10%

Poverty Threshold
–
1999 - Single parent/ one child
 $11,235
–
1999 - Four person Family
 $16,530
–
2013 - Two Person family
 $15,590
–
2013 - Four person family
 $23,550

Govt Role:
–
Those with less opportunity to be productive
often suffer
 Lack
of local jobs and few educational
opportunities
–
Our society recognizes the need to care for
the very young and the very old, the sick, the
poor and the disabled
 Different
State and Federal programs have been
set up to care for these individuals

The Welfare System
–
One way to ease poverty was to collect taxes
and redistribute this money to the poor
 1930’s
under FDR
 1960’s LBJ’s “War on Poverty”
 Welfare payments kept getting bigger
–
–
Less and less incentive to get off of welfare
There are many redistribution programs
designed to aid the poor and those in need in
different ways

1. Cash Transfers
–
Direct payments to the poor, disabled and
retired
 Social Security
– 1935
– Elderly
– Payroll taxes from working people to provide for retired
 Temporary Assistance for Needy Families (TANF)
– 1990’s
– A way to aid the needy, but with smaller payments
– Established as a way to keep people from becoming
dependent on these payments
– Lifetime limit on payments
– Move people into the workforce
–
2. Unemployment
 Funded
by both the Federal and State Govts
 Provides money to eligible workers who lost their
jobs
 Workers must show that they are continuing to
look for work while receiving benefits
–
3. Workers Compensation
 Provides
money to workers injured on the job
 Covered by insurance paid for by employers
 Becoming more costly
–
–
Medical Expenses have increased since the 1970’s
Number of claims has gone up
4. In Kind Benefits

Goods and services provided at a
reduced price or for free
–
Food Stamps
– Subsidized Housing
– Legal Aid
5. Medical Benefits

Govt provides health insurance for the
elderly, the disabled and the poor
through different programs
–
Medicare - people over 65
– Medicaid - covers some poor,
unemployed, and some not covered by
their employers
– Works through the Social Security
program
 Very
Expensive
6. Education

Federal, State and local Govts all
provide opportunities for the poor
–
Federal pays preschool to college
– State and local - help pay for those with
learning disabilities
– Adds to a nation’s human capital
 Shifts
PPF to the right
CH 3.3
Providing Public Goods

Market Failures

Examples of Public Goods

Government allocations of resources
by managing externalities
Market Failures

When a market does not distribute
resources efficiently on its own
–

Ex. Roads
Public Goods
–
Govt may step in when it determines that
its intervention and policy outweighs the
drawbacks of intervening
Public Goods

A shared good or service for which it would be
inefficient or impractical to:
–
–
1. Make consumers pay individually
2. Exclude non payers

Ex. Roads, dams, National parks, other major public works

Govt takes taxes and distributes them instead of
charging for these services separately
 If more people use it, benefit will not diminish
–
Roads continue to work even with traffic
Public vs Private Sector

Public goods are financed by taxes
 Public Sector
–

Private Sector
–

Part of the economy that involves Govt transactions
Transactions of individuals and businesses
“Free rider” problem –
People not willing to pay for good or service, but uses
it if it is provided


Fire prevention
Market failure – consume goods without cost
Externalities

A side effect of a good or a service that
generates benefits or costs to
someone else
–
Could be + or –
–
Positive
 Flip
This House
 Training programs

Negative
–
Unintended costs
– Part of the cost is now on someone other than
the producer
 Water

pollution
Market failure because costs are not
assigned properly
–
Govt creates + (education)
– Tries to limit – (pollution = costs associated
now back on producers)
CH 3.4
Promoting Growth and
Stability

How does the Govt track the business
cycle

Govt’s economic goals

Why, how does the govt encourage
innovation
Business Cycles

Period of macroeconomic expansion
followed by a period of contraction
(decline)
–
Macro – study of decision making and
behavior of entire economies
–
Micro – behavior and decision making of
small units (indiv., small businesses and
families)
Predicting Business Cycles
Gross Domestic Product – GDP – Total
value of all the final goods and services
produced in an economy
–
Used to predict a business cycle and
measure the economic well being of a
nation’s economy

Public policy is used to stabilize the economy –
three goals
–
1. High employment


–
2. Steady Growth

–
Desirable unemployment rate 4.5 – 5.5 %
Has ranged in the US between 3 and 11 last 60 yrs
For each generation to do better than the last, economy must
grow to offer additional goods and services
3. Stability of prices

Prevention of sudden shifts in prices
–

Dramatic price increases can alter macroeconomic decisions
Regulation of banks and other financial institutions

Innovation
–
Increase in productivity = higher standard of
living
– Improved technology = more goods produced
from the same amount of resources
 Operate
more efficiently
 “more, better, faster”
–
Govt provides grants/subsidies to industries
for research and development
$
given to colleges
 Patents (last 20 years)/ copyrights
–
In the Constitution