Economics Chapter 2 Free Enterprise in the United

Economics Chapter 2 Free Enterprise in the United States

Pillars of Free Enterprise u Private property u Entrepreneurship u Price System u Competition (PEPC)

Private Property The right to own property is protected by the U. S. Constitution u HOW private property is used is an important concept to the U. S. economy u u What do you own? n n u How do you care for those items? What if you don’t care for those items? What do businesses own? n n How do they care for those items? What if they don’t care for those items? (do the Private Property L. A. P. now)

Entrepreneurship u Seeing opportunities and acting on them to introduce new or better goods and services to the market u Take risks u Invest time and money in innovative ideas and products u Creativity and innovation are distinguishing traits

Price System Another name for a Market Economy u As buyers and sellers exchange goods, they establish prices u Prices do not necessarily indicate quality of a product u Prices DO tell businesses about the VALUE customers put on a particular product u Prices provide incentives to businesses and consumers. (Businesses want to sell more of higher priced items; Consumers bargain shop to drive prices down. ) u

(Market) Competition ► People in all societies compete for scarce resources and products ► Competition can take many forms, but in a market economy, people compete through voluntary exchange. u Competition resources: n n n for Oil deposits Complex machinery Skilled workers u You can be more competitive: n n Get a good education Develop your talents and skills u Competition for products: n n Every time you spend your earnings, you are competing with other buyers in the products market. Sellers are trying to earn a profit u Competing for buyers to pay the price that is profitable

The Circular Flow (Of Money, Resources, and Products) Goods & Services Households Labor & Other Resources Goods & Services Markets for G&S Household Spending Business Income Wages & Salaries Household Income Markets for Resources Businesses Labor & Other Resources

Money u Medium n Easier than swapping chickens for chairs u Store n of Exchange of Value A wallet is easier to carry than a chicken coop u Measure n n n of Value of your labor Value of a CD player Value of a hamburger

Other Systems u Command System n n n u Traditional System n n n u Definition Example Countries Economist Definition Example Countries “Economist” Mixed System n n n Definition Example Countries Economist • Number off 1, 2, 3 • Take out a sheet of paper • 1’s = Command System • 2’s = Traditional System • 3’s = Mixed System • Shortest person = spokesperson • Share with class 1) definition, 2) Example Countries, 3) Economist

Adam Smith & The Invisible Hand u “The Father of Economics” u Wealth of Nations u An “Invisible Hand” n Best Contributions to the “economic pie” = more slices for themselves Supply u Demand u Voluntary Exchange u

Three Basic Economic Questions: u What…will be produced u How… will it be produced u Who… will receive the goods & services?