The Private Enterprise System
Principles of Business
Project 2 :: What Would You Do?
Economic Systems
Every society develops a system for making
decisions about how it will use its resources
These economic systems must answer the
following questions:



What goods and services will be produced?
How will these goods and services be produced?
How will these goods and services be distributed
to the consumer?
Private Enterprise System
In this system, the questions are answered
by individuals and businesses, not the
government
Individuals and groups own or control the
economic resources – human and natural
resources and capital goods – to produce
goods and services
The characteristics of the private enterprise
system has enabled the nation to produce
more goods and services than any other
single county
Freedom in the Marketplace
In economic terms, marketplace refers
to any place where buyers and/or
selling of goods and services occur
Private enterprise is often called a
market economy or a market system
because markets answer the questions
of what, how, and for whom to
purchase
Free to Choose
Markets in private enterprise are selfregulated and self-controlled
They are free to choose:






What they wish to produce
Which resources to purchase
What techniques of production to use
How their goods or services will be marketed
What price(s) they will charge
When to close down or go out of business
Economic Vote
Each time a consumer makes a purchase,
s/he is casting an economic vote (dollar vote)
in the marketplace
These economic votes enable consumers to
control what will be produced
If consumers do not buy a product, the
producer must change it, replace it, or go out
of business
It is the responsibility of the consumer to be
well informed and to make educational
choices
Private Property
Anything of value that people own is
considered private property

Business property
 Buildings, land, equipment, etc.

Personal property
 Furniture, jewelry, money, clothing, etc.
Ownership includes the results of your
work
Private Property




Farmers’ ownership of the crops they raise
Workers’ ownership of the wages they earn
Businesses’ ownership of the goods or
services they provide
Individuals’ ownership of the profit that
comes from the sale of private property
Private Property
Individuals and businesses in a private
enterprise economy are free to decide
how to use their private property and
when and how to sell it


Enter freely into contracts involving their
private property
Stop others from using their private
property
Private Property




Abuse their private property as long as
they are not stepping on the rights of
others
Control their private property in any way
they choose
Use their private property to make income
Keep any income earned by renting,
leasing, or selling their private property
Limited Government Control
The private enterprise system in the
U.S. is not a pure private enterprise
system because there is a limited
amount of government control

Mixed system – individuals and
businesses are the primary economic
decision makers, while government helps
to regulate and control the system
Mixed System


Government steps in to protect citizens
The role of government has gradually
expanded partly because Americans want
certain problems, like inflation, pollution,
and unemployment, solved
Competition
The rivalry between two or more
businesses to attract scarce customer
dollars
Businesses compete by offering better
credit options, improving goods and
services, creating new goods and
services, and providing better service
The Profit Motive
Profit is the monetary reward business
owners receive in return for taking the risk
involved in starting a business
The desire to make a profit is called the
profit motive (forms the economic basis for
the private enterprise system)
Many people consider making a profit the
greatest motivating factor in the private
enterprise system
The Price-directed System
A private enterprise system is often called the
price-directed system because price
determines what consumers buy, which jobs
they will take, the success or failure of
businesses, and the types of products that
will be produced
Supply and demand work together to
determine prices
Weaknesses
While the private enterprise system is
the most productive in the world, it
does have some negative aspects, or
disadvantages

Production drops when sales are low;
companies may lay off workers or go out
of business; results in periods of
unemployment
Weaknesses


Poverty has not been eliminated
Property and income are not distributed
equally; some own a lot, others own
nothing
In a private enterprise system,
individuals and groups (rather than the
government) own or control the
economic resources
Summary
Characteristics include:






Freedom in the marketplace
Private property
Limited government control
Competition
The profit motive
Price-directed system
Still, unemployment, poverty, and unequal
distribution of wealth occur in the private
enterprise system
Economic Freedom
Freedom to choose



Your own personal economic goals
The kind of work you do
Whether you want to become an
entrepreneur, to own a business by
yourself
 Important to private enterprise system; without
entrepreneurs, the system would have much
less change, fewer new products, and less
efficient use of resources
Economic Freedom
Freedom to own, use, buy, and sell
property



Private property is anything of value that
you own (business or personal property)
Make decisions about how your private
property will be used
How much of your income you want to
save, spend, or invest
Economic Freedom

Free to buys goods and services anywhere
Freedom to compete


Free to use your abilities to compete for a
job, scholarship, etc.
Allows you to market your assets to your
best advantage
Limits to Economic Freedom
Cannot buy anything and everything
you might like to


Limiting factor is competition among
buyers; always people wanting to buy the
same things
Limited by own choices; if you choose to
buy one thing you may not have money to
buy another
Limits to Economic Freedom

Laws that have been created to protect people;
workers in medicine, construction, etc.; laws
require specialized training or must pass
examinations; cannot sell illegal drugs, stolen
property, or services for which s/he is not trained
or licensed to perform
Taxes collected from the government restricts
economic freedom since taxpayers cannot
use all of their income for their own purposes
Taxes are important, however, because they
help pay for highways, public schools, &
police
Review!
Alex owns a guitar, several books, a
car, and a telescope. Alex’s
possessions are examples of:




Equal distribution
Economic resources
Capital goods
Private Property
Private property. Private property is anything of
value that people own. It can be business or personal
property. Other examples of private property include
land, jewelry, buildings, and clothing. Economic
resources are the human and natural resources and
capital goods used to produce goods and services.
Capital goods are manufactured or constructed items
that are used to produce goods and services. Equal
distribution of goods and services is not possible,
even in economic systems set up for that purpose
Which of the following is a
disadvantage of private enterprise
A.
B.
C.
D.
Periods of unemployment
Elimination of poverty
Careful use of resources
Equal distribution of income
A
Periods of unemployment. In the United States,
production levels can drop due to decreased sales.
When this happens, companies may have to lay off
workers and/or go out of business. Other
disadvantages of private enterprise are poverty,
unequal distribution of income and property, and
careless use of resources
Private Enterprise is based on the idea
that everyone is better served when
A. businesses regularly increase their
prices.
B. individuals are free to set their own
goals.
C. government determines where
individuals will work.
D. economic resources are controlled
by the government.
B
Individuals are free to set their own goals. A private
enterprise system is based on the belief that when
people are free to make economic choices and to set
economic goals, they work harder to achieve those
goals. These citizens also believe in limited
government control and freedom of employment.
Regular increases in prices do not necessarily mean
that everyone will be better served.
One of the freedoms provided to individuals by the
private enterprise system is the freedom to choose
A. which laws they will obey.
B. how their employers pay them.
C. which taxes they will pay.
D. where they will work.
D
Where they will work. U.S. citizens are free to
choose the kind of work they would like to do
in order to make a living. They are limited by
their own interests, abilities, and training.
They are not, however, free to choose which
taxes to pay, which laws to obey, or how
their employers pay them (e.g., weekly or
monthly).
Why are entrepreneurs important
in a private enterprise system
A. They encourage the development of
new products.
B. They use resources inefficiently.
C. They get rid of competition.
D. They are responsible for deceptive
advertising.
A
They encourage the development of new products.
Entrepreneurs are people who take all the risks and
receive the profits from starting their own
businesses. Because of entrepreneurs, the private
enterprise system changes, has more new products,
and uses resources more efficiently. Government
keeps businesses from using deceptive advertising
and from limiting competition.