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Chapter 3 Benefits of a Free Enterprise Section 1 and 2
FIVE Basic Principles of Free Enterprise l Profit Motive l Open Opportunity l Legal Equality l Private Property l Freedom to Buy and Sell
1. Profit Motive ► Profit motive is the incentive that drives individuals and business owners to improve their material well-being § In a free enterprise system, business owners and managers make the choices themselves based on what will increase their profits § It forces the ‘boss’ to exercise financial discipline because they are ultimately responsible for the business in succeeding or not ►Example: Moving a MLB team
1. Profit Motive ► MLB team Montreal Expos existed from 1969 to 2004. They were losing money and fans. ► They moved their club to Washington D. C. and became the Washington Nationals in 2005
2. Open Opportunity ►Open opportunity is the principle that everyone can compete in the marketplace § In other words, anyone who wants to start a business whether they are wealthy or not have the same chance ►Example: Opening 2 different fast food places in the same town
2. Open Opportunity ► In Mankato, Burger King and Mc. Donalds compete right by each other in Mankato on Madison Ave
3. Legal Equality ►Legal equality is the principle that everyone has the same legal rights § This in returns benefits the economy by maximizing a countries use of its human resources § When a society doesn’t allow equal access to women and minorities, it loses productive potential for a business
3. Legal Equality Example: NCAA not allowing equal opportunity before Title IX in 1972. n The benefit of women in academics (math and science) and sports helped America in its potential in granting equal opportunity for women n As a result, more women are in school (more than men now) and women now have professional leagues including softball, basketball and soccer n
EXAMPLES of Women’s Opportunities w/ Legal Equality
4. Private Property n Private property is the principle that people have the right to control their possessions and use them as they wish n The free enterprise system allows people to make their own decisions about their own property. n Example: Making your house pretty or not allowing people on your land
4. Private Property
5. Freedom to Buy and Sell ► Free contract is the principle that people may decide what agreements they want to enter into § Example: Miley Cyrus decides to do her television show or Jackie Robinson signing to play with the Dodgers in 1947
5. Freedom to Buy and Sell ► Voluntary exchange is the principle that people may decide what, when, and how they want to buy and sell § In a free enterprise system, this encourages competition. ►Example: Selling your car or a garage sale
The Role of the Consumer ► The great thing about being an American consumer is you have the rights and freedoms to make your own economic choices. ► It’s the consumer who tells the producers if they like their product and are willing to spend their money on it.
► Interest groups— a private organization which tries to persuade public officials to act in certain ways that benefit its members § A very powerful interest group in America today is the National Rifle association
l Eminent Domain is the right of the government to take your private property for public use
The Role of the Government n The most important thing in the U. S. A. is its role is to protect the Constitution q Now within our economy, the governments responsibilities is to protect our: n n n Private Property Contracts Other business activities
With the Government’s Role we have……….
With the Government’s Role we have………. ► Public Interest which is the concerns of society as a whole ► Public Disclosure Laws which are laws requiring companies to provide information about their products or services
Chapter 3 Promoting Growth and Stability Section 2
GDP and Business Cycle n n Gross Domestic Product is the total value of all final goods and services produced in a country in a given year Business Cycle is a period of macroeconomic expansion, or growth, followed by one of contraction, or decline
Promoting Economic Strength ► Because a market is vulnerable to the business cycle, our government tries to create public policies that promotes economic strength. § The government focuses on three areas: ►Employment ►Economic Growth ►Economic Stability and Security
Employment l l Our government’s economic policy is to ensure jobs are there for everyone who is able to work Unemployment between 4 -6 percent is healthy. If its higher, the government may get involve by creating jobs or giving businesses incentives to hire
Economic Growth l l l The government may help economic growth in an economy by cutting taxes or increase spending. Its important for a society to keep its economy growing because as the population increases, demand will be there for a society. Tax cuts and spending helps out economic growth.
Stability and Security l l Consumers, producers, and investors need to feel confident that an economy will be strong and not jump up and down (fluctuate in unpredictable terms). Why? ? If there is no confidence in the economy, the stock market suffers and people will not invest. If no investing goes on, future jobs and growth in business suffers and ultimately, jobs may be cut or reduced.
Technology and Productivity Obsolescence is a situation in which older products and processes become out-ofdate
Patent n Patents are a government license that gives the inventor of a new product the exclusive right to produce and sell it q Patents run for 20 years in the U. S. A. n Examples: New drugs for medicine on the market
Copyright n Copyright is a government license that grants an author exclusive rights to publish and sell creative works q Its an incentive for innovation because it protects people’s right to profit from their creative ideas in a free market.
Work Ethic n Work Ethic is a commitment to the value of work n We all show it in our quality of work in the time and energy we put into a job