THE AMERICAN FREE
ENTERPRISE SYSTEM
Dr. T. D. Mitchell
Bonneville High School
Idaho Falls, Idaho
Economics: concepts and choices, 2011. Holt McDougal
ADVANTAGES OF THE FREE ENTERPRISE
SYSTEM
• Objectives in this section:
• Explain why the Unites States is considered to have a capitalist or free
enterprise system.
• Identify the legal rights that safeguard the free enterprise system.
• Analyze how the profit motive and competition help to make the free
enterprise system work.
Economics: concepts and choices, 2011. Holt McDougal
THE AMERICAN FREE ENTERPRISE SYSTEM
• Concept Review
• A market economy is and economic system based on individual choice, voluntary
exchange, and the private ownership of resources.
• Key Concept
• Free enterprise is another name for capitalism, and economic system based on
private ownership of productive resources. This name is sometimes used because
in a capitalist system anyone is free to start a business or enterprise.
Economics: concepts and choices, 2011. Holt McDougal
WHAT IS A
FREE ENTERPRISE SYSTEM?
• Business in America
• Choices are the basis of a market
economy.
• Business owners can freely choose to start
a business.
• Managers and workers who operate these
businesses voluntarily decide to exchange
their labor for the pay the owners offer.
• Consumers freely choose which products
to purchase.
Economics: concepts and choices, 2011. Holt McDougal
EMERGING MARKETS
• Let’s look at the economies of
Mexico and Singapore
• In Mexico, government plays a
much larger role.
• Informal markets have grown up.
• In Singapore, the government is
so involved workers are required
to contribute to a national
savings account.
Economics: concepts and choices, 2011. Holt McDougal
FREE ENTERPRISE AND LEGAL RIGHTS
Open Opportunity
Legal Equality
Free Contract
Economics: concepts and choices, 2011. Holt McDougal
HOW A FREE ENTERPRISE SYSTEM WORKS
Economics: concepts and choices, 2011. Holt McDougal
MILTON FRIEDMAN:
PROMOTER OF FREE
MARKETS
• Spent most of his career teaching at the University
of Chicago.
• Central to his ideas was the belief that the market
should be free to operate in all fields.
• Easing government restrictions would bring more
producers into the market.
• Governments most important role in the economy is
to control the supply of money.
• Advised two presidents
• Winner of the Nobel Prize.
Economics: concepts and choices, 2011. Holt McDougal
MILTON FRIEDMAN TALKS ABOUT GREED
Economics: concepts and choices, 2011. Holt McDougal
REVIEWING KEY CONCEPTS
1. Explain the difference among the following terms.
• Open opportunity
• Legal equality
• Free contract
2. How is a free enterprise linked to economic freedom?
3. Explain the role of competition in a free market. Illustrate you answer with
examples of businesses in Idaho Falls.
4. What do you think might be the next new technology to compete with computers?
Economics: concepts and choices, 2011. Holt McDougal
HOW DOES FREE ENTERPRISE
ALLOCATE RESOURCES
• Objectives in the section:
• Explain how consumers help determine the way resources are used.
• Explain how producers help determine the way resources are used.
• Analyze a circular flow model of the U. S. economy.
Economics: concepts and choices, 2011. Holt McDougal
THE ROLES OF PRODUCERS AND
CONSUMERS
• Producers seek profit.
• Consumers vote with their
wallets.
Economics: concepts and choices, 2011. Holt McDougal
GOVERNMENT IN THE U. S. ECONOMY
• Modified free enterprise
(circular flow)
• Located in the center.
• A consumer in the product market.
• Also a consumer in the factor
market.
• Government is a producer.
Economics: concepts and choices, 2011. Holt McDougal
REVIEW
• Compare and contrast the role of consumers and producers in producing resources.
Which do you think has the greater power?
• Use the circular flow diagram on pg. 80 and what you have learned from this section
to explain the ways in which government allocates resources.
• What industries in today’s world do you think would be wise to make changes given
consumers’ preferences? Give reasons for you selections.
Economics: concepts and choices, 2011. Holt McDougal
GOVERNMENT AND FREE ENTERPRISE
• Objectives in the section:
• Understand that one role of government in the U. S. economy is to address
market failures.
• Analyze why governments provide public goods and infrastructure.
• Explain how governments seek to decrease negative externalities and
increase positive externalities.
Economics: concepts and choices, 2011. Holt McDougal
PUBLIC GOODS
• Funded by taxes collected by the government.
• People cannot be excluded from the benefits.
• One person’s use of the product does not reduce the usefulness to others.
• Free Riders
• Pubic and Private Sectors – shared responsibilities
• infrastructure
Economics: concepts and choices, 2011. Holt McDougal
MANAGING EXTERNALITIES
• Negative externality
• Paying for negative externalities
• Positive externality
• Spreading positive externalities
• Subsidy
Economics: concepts and choices, 2011. Holt McDougal
PUBLIC TRANSFER PAYMENTS
• Safety net
• Redistributing income
• Transfer payments
• Public transfer payment
Economics: concepts and choices, 2011. Holt McDougal
CHECKING FOR UNDERSTANDING
• Illustrate the two characteristics of public goods with examples.
• How is infrastructure linked to the economy?
• Give an example of a free rider.
• In 2003, Congress passed laws to encourage private charitable organizations
to provide social services. They would compete for government funds to
carry out community services through their own networks. Do you think this is
an effective way to address social issues? Use economic concepts, such as
markets, efficiency, and opportunity costs in developing your response.
Economics: concepts and choices, 2011. Holt McDougal
FINAL THOUGHTS
Economics: concepts and choices, 2011. Holt McDougal