Transcript Capitalism_and_Free_Enterprise

Warm Up- Copy Right?
• Copy and Answer the following question
(5 minutes from bell ring):
• Explain why you think that you should or
should not download music for free from the
Internet. Include at least three reasons to
support your argument.
Capitalism and
Free Enterprise
Features of Capitalism
• The U.S. economy is built on capitalism and free
enterprise.
• Capitalism is an economic system in which private
citizens own and use the factors of production to seek
a profit.
• Free enterprise is an
economy in which competition
is allowed to flourish with a
minimum of government
interference.
Consumer Sovereignty
• Markets are places where different sectors of
the economy interact, and their exchanges
determine the prices of goods and services.
• Businesses try to produce the products people
want most.
• Because of this, we use the term consumer
sovereignty to describe the consumer as
ruler of the market, the one who determines
what products will be produced.
Choice
• Choice is a key element for
free enterprise.
• We are free to choose the
occupation we want and
where we want to work.
• We can choose the
products we will buy.
• Businesses can choose the
products they will produce
and offer for sale.
Consequence
• Along with the freedom to choose comes the
responsibility to accept the consequences of
the decisions.
• If an entrepreneur starts a business that fails,
the government usually
won’t help out.
The Right to Own Property
• Under capitalism, we also have
private property rights.
• We are free to own and use, or
dispose of, our own property as
we choose as long as we do not
interfere with the rights of others.
• These rights give us the incentive
to work, save, and invest.
Competition
• Capitalism thrives on competition—the struggle
between buyers and sellers to get the best
products at the lowest prices.
• Competition rewards the most efficient producers
and forces the least efficient out
of business. Competition results
in efficient production, higherquality products, and more
satisfied customers.
Profit & Profit Motive
• Profit is the money left over after all
costs of production have been paid.
• The profit motive is the driving force
behind free enterprise and capitalism.
People are willing to invest in a
business venture and risk losing their
investment for the chance to earn a
profit.
Voluntary Exchange
• Voluntary exchange is the act of buyers
and sellers freely and willingly engaging in
market transactions.
• As long as exchanges are voluntary, both
buyer and seller must feel that they benefit
from their exchange, or they will not do it.
Protecting your Product
• Patent- gives the inventor of a new product
the right to produce and sell it for 20 years.
• Copyright- gives an author the exclusive right
to sell his or her creative works.
– As a producer these protections give you security,
equity and freedom.
Circular flow of economic activity
Circular Flow Diagram of a Mixed Economy
Product market
monetary flow
physical flow
Households
expenditures
Government
physical flow
monetary flow
Factor market
expenditures
Firms
• Government plays a part in
the circular flow of the
economy in most modern
economies
• They buy land, labor and
capital to produce goods,
and they provide certain
goods and services as well.
• They also collect taxes
from individuals and
businesses.
• They then give money to
individuals and businesses.
Economic Interdependence
• This is the system that is created by a mixed
economic model and therefore makes the
government, business and the individual
interlocked in economics.
The Spread of Capitalism
• Capitalism developed gradually over hundreds
of years.
• Two concepts underlie the market
system:
– People Can Work for Economic Gain, and
– Government Should Have a Very Limited Role in
the Economy
Economist-Adam Smith
• In his book The Wealth of
Nations, Scottish economist
Adam Smith scientifically
described the basic principles
of economics for the first time.
• Smith believed that
individuals, in seeking
profit, end up benefiting
society as a whole.
Laissez-Faire
• From the writings of Smith and others came the
idea of laissez-faire, meaning “to let alone.”
• According to this philosophy, government
should not interfere in the marketplace.
Government’s role is to ensure free competition.
• Many American Founders were influenced by
Smith’s book.
Other Market SystemsCommand Economy
• In a pure command economy, the central
government makes the major economic decisions.
Individuals have few choices and little influence
over the economy. This system has also been called
a controlled economy, socialism, or communism.
• Socialism is the belief that the means of
production should be owned and controlled by
society, either directly or through the government.
• Under communism one class would evolve,
property would all be held in common, and there
would be no need for government.
Other Market SystemsMixed Economies
• A mixed economy combines basic elements
of a pure market economy and a command
economy.
• Most countries have a mixed economy that
combines private ownership of property and
individual decision making with government
intervention and regulations.
Other Market SystemsTraditional Economies
• In traditional
economies, economic
decisions of what, how,
and for whom to produce
are based on custom or
habit.
• The way of life is passed
down from generation to
generation.
Name that Economy – Class Game
• Students will be broken into 5 separate groups, and
each will have four different response cards. Each
response card will be labeled with a different
economic system (mixed, traditional, free market,
command).
• I will display a description of an imaginary country on
the board. Each description is connected to one of
the four economic systems we discussed. The groups
will have 5 seconds to decide what type of economy
is being described, and will then hold up the
appropriate response card.
Scenario A
• After much deliberation, state planners in
country A have decided that it would be in
their country’s best interest to produce more
automobiles than textiles. The state planners
have allocated the resources needed to
construct the automobiles and instructed the
various factories on how many automobiles
should be produced.
Scenario B
• In country B, the CEO of Ryland Audio
recently decided to increase production levels
on the company’s latest version of an MP3
player and decrease production levels on the
company’s compact disc players. The decision
was made since more profit is to be gained
by meeting demand and selling MP3 players.
Scenario C
• When times are difficult in Country C, people
tend to rely on their communities for
assistance. Changing temperatures, which
greatly alter harvests, can lead to
troublesome times. In country C it is very
important to form strong bonds with
neighbors with whom people can share or
trade.
Scenario D
• As long as the business owners in Country D
can abide by fair trade policies, they can
produce and sell whatever goods they please.
For example, owners of a video game
company in country D decided to wait until
the holidays to release a new game to
increase the anticipation and profit for the
game.
Homework:
1. Who wrote the document that called for the proletariat to
overthrow the bourgeoisie and what is the name of the document?
2. What kind of economy did Adam Smith feel should be guided by
the Invisible hand?
3. What kind of economy do we have in the US? Why?
4. What are two traits of a Traditional economy?
5. Communism and Socialism are both examples of what type of
economy?
6. What is the French term that Smith uses to describe a “hands
off” approach to the economy?
7. What are two ways that people can protect their property from
being produced or sold by someone else?
8. In the US, we agree to buy or sell private property, what is that
called?