Transcript Free Enterprise

American Free Enterprise
Standards
• Standard 15 – Students will understand that:
Investment in factories, machinery, new technology,
and the health, education, and training of people can
raise future standards of living
• Standard 16 – Students will understand that: There is
an economic role for government to play in the market
economy whenever the benefits of a government
policy outweigh its cost. Governments often provide
for national defense, define and protect property
rights, and attempt to make markets more competitive.
Most government policies also redistribute income
Benefits of Free Enterprise
Chap 3.1
Benefits of Free Enterprise
• America is considered the land of opportunity
• There are millions of companies, many started
by a single entrepreneur with an idea
• The tradition of free enterprise and
Constitutional protection have encouraged
people to engage in business ventures
The Constitution
• The Fifth Amendment promises to protest
people’s property
• The Fourteenth Amendment prevents the
government from taking your property
• The Sixteenth Amendment allows the
government to tax people based on their
income
• The Constitution also guarantees binding
contracts and protects patents for 20 years
Principles of Free Enterprise
• The profit motive encourages people to be
more efficient, it encourages innovation
• Anyone can compete in the market place and
there is economic mobility
• The government guarantees everyone has
equal rights which maximizes human capital
• Private property rights allows individual to make
decisions about their own property
• Free contracts allow people to engage in any
contract agreement
• Competition then lowers the cost for consumers
The Government
• Responsible for:
a) protecting the Constitutional rights of people
b) protect all the people from major issues like
regulating drugs, pollution, unsafe foods
c) make sure consumers tell the truth about
products – disclosure laws
d) operate regulatory agencies
• Negative effects:
a) too much regulating reduces competition and
raises costs
b) Increasing government oversight has cost a
great deal of money
Growth and Stabilty
Chap 3.2
Promoting Growth and Stability
• The American economy is one of the largest
• Macroeconomics deals with behavior and
decisions concerning entire economies
• Microeconomics deals with behavior and
decisions concerning individuals, families, and
businesses
• The government tries to prevent wild swings in
the business cycle
Factors for Growth
• The governments has three objectives in
stabilizing the economy:
1. High employment – a rate between 4%-6% is
acceptable
2. Steady growth – the economy must provide
more goods and services to grow. Measured
by the GDP
3. Stability – the government wants the
economy to be: a) stable to make investors
happy, b) prices to be relatively stable, c)
people to have confidence in their banks
Measuring Standard of Living
• Gross Domestic Product (GDP)
– Total dollar value of all goods and services
produced in a country in any one (calendar) year.
– Not a good measure because it is different in
different countries
– In Europe they include prostitution and Black
market
– In China it is huge deal – measures success, but
leads to “ghost cities”
• GDP per capita = GDP / Population – much better, but still
problematic
Public Goods
Chap 3.3
Public Goods
• The government usually provides shared goods
such as roads or dams because individuals
could not
• Cost is the main factor in determining the
production of a public good
total benefits to society must be greater than
real cost
• Public goods are financed by the public sector
• The main problem with public goods is free
riders, this is an example of market failure
Public Goods
Externalities
• An externality is an economic side effect of a
good or service that generates benefits or costs
to someone other than the person deciding how
much to produce or consume.
– The building of a new dam and creation of a lake generates:
• Positive Externalities
–
–
–
–
–
A possible source of hydroelectric power
Swimming
Boating
Fishing
Lakefront views
• Negative Externalities
–
–
–
–
Loss of wildlife habitat due to flooding
Disruption of fish migration along the river
Overcrowding due to tourism
Noise from racing boats and other watercraft
• Externalities are market failures because the
cost or benefit of a good or service is not
assigned properly
• The government encourages positive
externalities and discourages negative
externalities
Safety Nets
Chap 3.4
Poverty
• The state of being poor
• Despite one of the strongest economies in the
world, the United States has not eliminated
poverty
• In fact, free enterprise has created enormous
wealth but also huge problems associated with
poverty
• The poverty threshold in 2012 is $23,050 for a
family of four
Poverty
• In 2012 the poverty rate was 15% with 46.5
million people living in poverty
• The poverty rate for children under 18 was 21%
• The 2011 poverty rate for white people in
Georgia is 11.2%
• The 2011 poverty rate for African Americans in
Georgia is 24.7%
The Safety Net
• Free market economies create disparities of
wealth - winners and losers
• a) 16% of population live in poverty
b) in 2011, 1.2% lived on less than $2 a day per
household – extreme poverty
c) in 2009, 643,000 homeless people
• Federal, state, and local organizations try to
help, especially the young and the old
• Cash transfers are payments of money to the
poor
Welfare Programs
– TANF: cash payments for poor families
– Social Security: cash for elderly, disabled, and
survivors of workers
– Unemployment: cash for those who lost their
jobs
– Workers’ comp: cash when injured on the job
– In-kind Benefits: Goods and services given to
poor (food stamps, reduced rent)
– Medical Benefits: Medicare, medicaid
– Education: public education, grants for college