Marketing Essentials
n Chapter 3 The Free Enterprise System
Section 3.2 Government and
Consumer Functions
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
What You'll Learn
 The roles government plays in our free
enterprise system
 Supply and demand theory
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Why It's Important
As a consumer, you need to understand your
power to affect the prices you pay for products.
As a voter, you have a responsibility to
understand how decisions made by the
government affect you, your investments,
and your life in general.
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Key Terms
 demand
 supply
 equilibrium
 surpluses
 shortages
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
The Role of Government
The United States is a modified free enterprise
system. In such a system, the government acts as:
 provider of services
 supporter of business
 regulator
 competitor
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Government as Provider of Services
To ensure the safety and general welfare of
people in the United States, the government
provides:
 military protection
 roads and bridges
 police protection
 public libraries
 fire protection
 welfare system
 free public education
 health care for the
elderly and poor
 job training
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SECTION 3.2
Government and Consumer
Functions
Government as Supporter of Business
 The government provides disaster assistance
to help both businesses and homeowners
rebuild after disasters.
 The Small Business Administration provides
counseling and educational materials to
support business.
 The government is the largest consumer of
goods and services in the U.S.
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Government as Regulator
In the United States, most laws are designed
to protect the safety, health, and welfare of
individuals and the freedom of businesses to
operate in our free enterprise economic
system.
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Government as Regulator: Consumer
and Worker Protection
The government protects workers and consumers
through the following federal agencies:
 Food and Drug Administration (FDA)
 Equal Employment Opportunity
Commission (EEOC)
 Occupational Safety and Health
Administration (OSHA)
 Consumer Product Safety Commission
(CPSC)
Slide 1 of 2
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SECTION 3.2
Government and Consumer
Functions
Government as Regulator: Consumer
and Worker Protection
 Environmental Protection Agency (EPA)
 The Securities and Exchange
Commission (SEC)
Slide 2 of 2
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Government as Regulator:
Business Protection
The government provides laws and
regulations regarding patents, copyrights, and
trademarks.
The government regulates trade with other
countries to protect national security and
to protect U.S. companies from unfair
competition.
Slide 1 of 3
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Government as Regulator:
Business Protection
The Sherman Antitrust Act, passed in 1890,
outlawed monopolies in business, protecting
competition.
The Clayton Antitrust Act, passed in 1914,
closed loopholes in the Sherman Antitrust Act.
The Federal Trade Commission (FTC)
enforces both acts.
Slide 2 of 3
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Government as Regulator:
Business Protection
The Federal Reserve System is the nation's
banking system. The Federal Reserve Board
of Governors controls interest rates,
increasing or decreasing rates to manipulate
economic activity and inflation.
Slide 3 of 3
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Government as Competitor
The federal government runs three businesses:
 Tennessee Valley Authority provides
electricity to the rural South
 U.S. Postal Service provides national
mail delivery
 Amtrak provides passenger rail service,
established under the Rail Passenger
Act of 1970.
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
The Role of the Consumer
Consumers do two major things in the
marketplace:
 They pick the winners—the products
and businesses that will be in the
marketplace tomorrow.
 They determine the demand for any
given product, and therefore help
determine prices.
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Deciding Which Businesses Survive
Consumers decide which businesses will
survive by "voting" with each purchase.
The more votes (sales) a product gets,
the more likely that product or company
will survive.
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Determining Prices
Prices in a free enterprise system are determined
by supply and demand.
Supply and demand interact to determine
the price customers are willing to pay for
the number of products producers are
willing to make.
Slide 1 of 4
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Determining Prices
Demand refers to consumer willingness and
ability to buy products. According to the law of
demand, if the price is low enough, demand for a
product usually increases.
Slide 2 of 4
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Determining Prices
Supply is the amount of goods producers are
willing to make and sell.
 higher prices = more products for sale
 lower prices = less products for sale
Slide 3 of 4
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Determining Prices
Equilibrium exists when the amount of
product supplied is equal to the amount of
product demanded.
Slide 4 of 4
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Surpluses
Surpluses of goods occur when supply exceeds
demand. When this happens, businesses
respond by lowering their prices in order to
encourage people to buy more of the product.
 Example: When grocery stores have lots
of produce, they price the produce low to
encourage people to buy.
Chapter 3 n The Free Enterprise System
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SECTION 3.2
Government and Consumer
Functions
Shortages
When demand exceeds supply, shortages
of products occur. When shortages occur,
businesses can raise prices and still sell
their merchandise.
 Example: An oil shortage increases the
price of gasoline, so consumers who
want to drive their vehicles pay the
higher price.
Chapter 3 n The Free Enterprise System
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3.2
ASSESSMENT
Reviewing Key Terms and Concepts
1. Name four ways government is involved in
our free enterprise system.
2. Why is the United States said to have a
modified free enterprise system?
3. What is the FTC, and what does it do?
Slide 1 of 2
Chapter 3 n The Free Enterprise System
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3.2
ASSESSMENT
Reviewing Key Terms and Concepts
4. In the U.S. free enterprise system, who
decides which businesses will survive
and what prices will be charged for the
goods sold?
5. What is the equilibrium point in supply and
demand theory?
Slide 2 of 2
Chapter 3 n The Free Enterprise System
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3.2
ASSESSMENT
Thinking Critically
A new airline starts up with low fares and
many new routes. At the same time,
established airlines drop their fares and
add new flights to match the routes of the
new airline. Is this against the law?
Explain your position.
Chapter 3 n The Free Enterprise System
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3.2
Graphic Organizer
The Determinants of Demand
Existence
of
Substitutes
Prices of
Complimentary
Goods
Tastes
and
Preferences
Demand
Changes
in
Population
Income
Chapter 3 n The Free Enterprise System
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Marketing Essentials
End of Section 3.2
Chapter 3 n The Free Enterprise System
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