CHAPTER 3 AMERICAN FREE ENTERPRISE S 1 Benefits

CHAPTER 3: AMERICAN FREE ENTERPRISE S. 1: Benefits of Free Enterprise S. 2: Promoting Growth and Stability S. 3: Providing Public Goods S. 4: Providing a safety net

INTRODUCTION What are the benefits of free enterprise? � Makes it possible for people who have ideas & persistence to start businesses and find success � Offers great deal of economic freedom to consumer

WHAT IS FREE ENTERPRISE? U. S. considered to be “land of opportunity” � American tradition of Free Enterprise has been key supporter of this Characteristics � Profit motive: Key incentive; all decisions are made w/ idea of increasing profit � Open opportunity: Anyone can participate in market � Legal Equity: Everyone has same legal rights…. now. . � Private Property: Own decisions about own property � Freedom to buy/sell: Own decisions about entering agreements, and what/when/how to buy/sell

ROLE OF THE CONSUMER Freedom to make own economic choices � Voluntary exchanges happen so businesses know what and how much to produce Interest groups � Consumers can join them to encourage public officials to act in ways to benefit them

ECONOMIC FREEDOM & CONSTITUTION Free enterprise is written into the constitution � 5 th Am. : Protects private property from being taken w/out due process � Spells out how govt. can tax people/businesses � Even though govt. can take land for public reason Eminent Domain: but have to pay fair price Art. I: Congress can levy taxes Income tax didn’t happen till 16 th am. Guarantees people/businesses right to make contracts

ROLE OF THE GOVT. IN MARKETPLACE Govt. has many roles � Carrying out constitutional responsibilities to protect rights, contracts, and other business activities � Making sure that producers provide consumers with information � Protecting the health, safety, and well-being of consumers

NEGATIVE EFFECTS OF REGULATION Rules are costly to implement Regulations stifle competition Govt. spending increased in industries b/c have to hire workers to do actual oversight

MAJOR FEDERAL REGULATORY AGENCIES Identify one agency set up to protect � Public Safety FDA FAA CPSC � Fair competition FTC FDIC � Equality EEOC How do you think the FCC promotes the public interests? � Making sure broadcast communication conforms to standards so consumers can receive signals

3. 2: PROMOTING GROWTH/STABILITY “How does U. S. Govt. promote growth/Stability? ” top of notes Learning objectives � Why govt. s track and seek to influence business cycles � How the gov. t promotes economic strength � What factors increase productivity Key Terms � http: //www. pearsonsuccessnet. com/snpapp/i. Text/products/0 -13 -3698335/Flash/Ch 03/Econ_Online. Lecture. Notes_ch 3_s 2. swf

INTRODUCTION How does the U. S. Govt. encourage growth/stability? � Tracking Business Cycles � Promoting High employment � Keeping prices stable � Encouraging development of new technologies � Pride in American Work ethic

TRACKING BUSINESS CYCLES Govt. often intervenes to influence macroeconomic trends One measurement of well-being is GDP � Gross Domestic Product Measurement of total goods/services produced in year � Business Cycle: pattern of expansion followed by contraction Expansion GDP goes up Contraction GDP goes down Why do govt experts track the business cycle? � So they can see where country is and make predictions

PROMOTING ECONOMIC STRENGTH High Employment � � Economic Growth � Govt. works to ensure jobs for everyone available 4 -6% unemployment is healthy To help spur growth, govt. can cut taxes or increase spending Stability and Security One indicator can be price levels, another is banks/financial institutions � Government looks to prevent sudden shifts in prices to avoid consumer/producer suffering � Govt. Regulations seek to keep banks/financial inst. ’s stable; think bailout!! � Economic Citizenship � Voters have a say in promoting economic strength by: Voting for public officials Voting on referendums

TECHNOLOGY AND PRODUCTIVITY How does tech improvement help economy? � Allows economy to operate more efficiently Helps increase productivity Light bulb made longer workdays Assembly line: mass production Govt. s promote innovation/invention to maintain a technological advantage by: Funding R & D projects @ universities � Est. own research institutions: NASA � Grant patents/copyrights, incentives to innovation �

AMERICAN WORK ETHIC Growth cannot occur w/out indiv. Effort � Americans have pride in strong work ethic, not only ethic but the work they do � Work ethic has long been seen as a key ingredient in U. S. ’s success

SECTION 3 Bell Work: During Europe Video over Unemployment Copy down chart on pg. 62 Fill in chart from pg. 56 Finish 23, 108 from Workbook

SECTION 3 “Why does a society provide public goods? ” Objectives � Examples of Public Goods � Understand market failures � How govt. s allocate resources to manage externalities Key Terms � http: //www. pearsonsuccessnet. com/snpapp/i. Text/products/ 0 -13 -3698335/Flash/Ch 03/Econ_Online. Lecture. Notes_ch 3_s 3. swf

INTRODUCTION Why does a society provide public goods? � B/C it would be inefficient/impractical for a free market to provide them

PUBLIC GOODS Shared good/service that would be inefficient/impractical to make consumers pay for or to exclude those who can’t Maintaining Streets is one example � Signs, lights, conditions, etc. Used by any # of people w/out reducing its benefits Financed by public � Police, firefighters, etc.

PUBLIC GOODS: COSTS/BENEFITS What 2 Criteria must be present for a public good? � Benefit is less than cost each individual would have to pay if privately provided � Total Benefits to society are greater than total cost

PUBLIC GOODS: COSTS/BENEFITS Govt. pays for public goods through……. � Taxes Financial burden become much less than if private funded

PUBLIC GOODS: FREE RIDER PROBLEM “Free Riders” � People not willing to pay for certain good/service but would benefit from its offering as public good Government stops providing public good � Instead relying on “donations/contributions Some people would “refuse” to pay and many services would be eliminated Examples � National Roads Pay for a road in Florida/Texas? RIGHT!! But you would benefit from easier trucking routes/vacations Firefighting Not everyone would pay for fire protection. Neighbors could spread to yours and they don’t pay for it? � Provided as public good!

MARKET FAILURES: READ SECTION Why are public goods an example of market failure? � Shows where the free market does not distribute resources efficiently Example: Building roads. How many people could afford to privately pay for road usage and to build roads

EXTERNALITIES: ECONOMIC SIDE-EFFECTS Positive Externalities � Benefits of public goods � Allow someone who didn’t purchase a good to enjoy part of benefits Negative Externalities � Cause part of the cost of producing good/service � Paid by someone other than producer Look at 3. 3 pg. 66 � Answer 2 ? s

GOVERNMENT GOALS Understanding externalities helps us see the roles that govt. plays in U. S. economy � Takes Improving education � Takes action to create positive externalities actions to limit negative externalities Pollution, health issues. Many economists feel the private sector produces more pos. externalities than the govt. � “With less” regulation companies wouldn’t eat as much money in costs meeting them, but would also be encouraged to find their own methods of better meeting broad requirements. Just an argument though, pros/cons for each side

SECTION 4 Bell Work Finish Chart from Section 3 Copy Chart from Section 4 Create 10 Vocab cards that you can quiz a partner on later. Use sheets in front. Due tomorrow

S. 4: PROVIDING A SAFETY NET “How does Government help the poor? ” Objectives � Understand U. S. debate on ways to fight poverty � See main programs to redistribute wealth � How govt. encourages private efforts to help needy Key Terms � http: //www. pearsonsuccessnet. com/snpapp/i. Text/produ cts/0 -13 -3698335/Flash/Ch 03/Econ_Online. Lecture. Notes_ch 3_s 4. swf

INTRODUCTION How does the government help the poor? � To help the poor govt. programs take money from some people and redistribute it to others Program examples: Welfare system Cash transfers In-kind benefits Medical Benefits Educational benefits Grant Money

POVERTY PROBLEM Problem � Free markets create uneven wealth distribution � Poverty “threshold” is set based on the cost of goods a family NEEDS to buy Governments Role � Provides a safety net to groups through federal, state, and local govt. programs Young, old, sick, poor, disabled � Welfare Program Collects funds from taxpayers to redistribute money to needy Began during……? � Great Depression

WELFARE REFORM Critics of welfare � Claim it discourages productivity and furthers poverty � 1996 new reforms limited amount of time people could receive welfare Also gave states more freedom to experiment w/anti-poverty programs

REDISTRIBUTION PROGRAMS Cash Transfer Programs � (TANF) Temporary Assistance for Needy Families Welfare payments to states who run own programs Social Security- Collects money from current workers and redistributes to retired/disabled people � Unemployment Insurance. Provides $$ to workers who lost jobs; need to proof making effort to work � � Temporary: 26 weeks in most states Workers compensation- Provides state funds to workers injured on the job

IN-KIND BENEFITS Govt. provides poor people w/ benefits � Food stamps Assistance for food � Subsidized Less $ for rent � Legal housing aid No charge legal advice

MEDICAL AND EDUCATIONAL BENEFITS Govt. provides health care to…. . � Elderly (Medicare) � Disabled/poor (Medicaid) � Uninsured children (SCHIP) Govt. funds educational programs from pre-school to college � Cheaper State colleges, reduced lunch, free-preschool

ENCOURAGING PRIVATE ACTION How does tax law provide an incentive to help the needy? � Read section on pg. 72 � Federal tax laws allow individuals/corporations tax deductions for charities � Government can also provide grants/other assistance to organizations that provide social services