CH 3.1 Preserving Economic Freedoms How does the government protect Americans’ economic rights Government policies that serve public interest Government.

CH 3.1 Preserving Economic Freedoms

How does the government protect Americans’ economic rights

Government policies that serve public interest

Government intervention in protecting public health, safety, and well being

Protecting the American PeopleUntil around the 1960’s, there was little

regulation of products that could affect the well being of Americans– Businesses could manufacture goods in a

manner that suited their needs over the public

– Govt started getting involved in public interestConcerns of the public as a whole

7 Major Features of American Free Enterprise 1. Economic Freedom - Individuals (where to

work)– Businesses can also chose who they hire, what

to produce, how much to produce, how much to charge

2. Competition - producers have the right to engage in rivalries to gain business– Drives producers to create new and better

productsCreates more choices for consumers

• 3. Private Property - Individuals and businesses can buy and sell as much property as they like.– Property owners can prohibit others from using

their property

• 4. Contracts - Legally binding agreements between individuals to buy and sell goods

• 5. Self Interest - Decisions made by both individuals and businesses to benefit themselves• Do not have to please the govt, other consumers

or producers

• 6. Voluntary Exchange - Consumers and producers may freely buy and sell goods when it is worthwhile for them• Both parties expect to gain from the

exchange

• 7. Profit motive - Driven for the desire for profit• Profit is a powerful incentive that leads

entrepreneurs and businesses to accept the risk of business failure

Regulating industries that affect public safety and health is one way the govt influences the economy– This has been an issue through time

Costs money Places limits on business activityLimits choice

– Trade off that most Americans are willing to make on some level• People are willing to give up some amount of

freedoms to keep society safe

If business is driven solely by profit, there is no incentive to keep people safe

Consumer control in Free Enterprise• 1. Through what they buy, consumers tell

producers what to make, how much to make, and how much to charge• Consumer Sovereignty

• 2. By voting, consumers can control the governments policies regarding the economy• The govt responds to public interest issues by

creating public policy• Laws and standards on topics of public interest

Public Policy

• To try to meet a goal, individuals may join an interest group• A private organization which tries to

persuade public officials to vote according to what they want done

• Raise funds to campaign for what they want

• Can be beneficial for the majority, or can serve the needs of a select group

Information

• Correct information is vital to making your decision when there are many goods to choose from

• Public disclosure laws - companies are required to give full information about their products• Peanuts!!!

• Environmental Protection• Until the 1960’s there was little control over

the conduct of business• Pollution of water, land and air• Cuyahoga River, OH

• 1970 - Environmental Protection Agency • Strict regulations and clean up requirements

• How much is too much?• Businesses argue that too much control

limits the profits they can make• Consumers ask for more protection and

control

Protecting Health, Safety and Well Being• Consumer protection

• Caveat emptor - buyer beware• Lab tests on food, medicine• Labels on food that include expiration dates

• Worker health and Safety • Occupational Safety and Health Administration

(OSHA)• Regulations on workplace safety • Information about health threats must be divulged

• 1906 - Food and Drug Administration• Standards on food, drugs, and

cosmetics

• 1914 - Federal Trade Commission • Enforces and enacts antitrust and

monopoly laws

• 1964 - Equal Employment Opportunity Commission• Promotes equal job opportunity through enforcement of

civil rights laws, education and other programs

• 1970 - Environmental Protection Agency• Enacts policies to protect human health and the

natural environment

• 1970 - OSHA• Enacts policies to save lives, prevent injuries,

and protect health of workers

Ch 3.2 Providing a Safety Net

How does the US fight poverty What are some ways the US

redistributes wealth

The Free Market and Poverty

The free market has created more wealth than any other economic system – Wealth is not shared equally

Many people live below the poverty threshold

– Income level below what is necessary to support families or households

40% of the world’s wealth is owned by 1% of the population

85% is owned by 10%

Poverty Threshold– 1999 - Single parent/ one child

$11,235– 1999 - Four person Family

$16,530– 2013 - Two Person family

$15,590– 2013 - Four person family

$23,550

Govt Role:

– Those with less opportunity to be productive often sufferLack of local jobs and few educational

opportunities

– Our society recognizes the need to care for the very young and the very old, the sick, the poor and the disabled

Different State and Federal programs have been set up to care for these individuals

The Welfare System– One way to ease poverty was to collect taxes

and redistribute this money to the poor1930’s under FDR1960’s LBJ’s “War on Poverty”Welfare payments kept getting bigger

– Less and less incentive to get off of welfare

– There are many redistribution programs designed to aid the poor and those in need in different ways

1. Cash Transfers– Direct payments to the poor, disabled and

retiredSocial Security

– 1935– Elderly – Payroll taxes from working people to provide for retired

Temporary Assistance for Needy Families (TANF)– 1990’s– A way to aid the needy, but with smaller payments– Established as a way to keep people from becoming

dependent on these payments– Lifetime limit on payments– Move people into the workforce

– 2. UnemploymentFunded by both the Federal and State GovtsProvides money to eligible workers who lost their

jobsWorkers must show that they are continuing to

look for work while receiving benefits

– 3. Workers CompensationProvides money to workers injured on the jobCovered by insurance paid for by employersBecoming more costly

– Medical Expenses have increased since the 1970’s– Number of claims has gone up

4. In Kind Benefits

Goods and services provided at a reduced price or for free– Food Stamps– Subsidized Housing– Legal Aid

5. Medical Benefits

Govt provides health insurance for the elderly, the disabled and the poor through different programs– Medicare - people over 65– Medicaid - covers some poor,

unemployed, and some not covered by their employers

– Works through the Social Security programVery Expensive

6. Education

Federal, State and local Govts all provide opportunities for the poor– Federal pays preschool to college– State and local - help pay for those with

learning disabilities– Adds to a nation’s human capital

Shifts PPF to the right

CH 3.3Providing Public Goods

Market Failures

Examples of Public Goods

Government allocations of resources by managing externalities

Market Failures

When a market does not distribute resources efficiently on its own– Ex. Roads

Public Goods– Govt may step in when it determines that

its intervention and policy outweighs the drawbacks of intervening

Public Goods

A shared good or service for which it would be inefficient or impractical to:– 1. Make consumers pay individually– 2. Exclude non payers

Ex. Roads, dams, National parks, other major public works

Govt takes taxes and distributes them instead of charging for these services separately

If more people use it, benefit will not diminish– Roads continue to work even with traffic

Public vs Private Sector

Public goods are financed by taxes Public Sector

– Part of the economy that involves Govt transactions Private Sector

– Transactions of individuals and businesses

“Free rider” problem - – People not willing to pay for good or service, but uses

it if it is providedFire prevention Market failure – consume goods without cost

Externalities

A side effect of a good or a service that generates benefits or costs to someone else– Could be + or –

– PositiveFlip This HouseTraining programs

Negative– Unintended costs– Part of the cost is now on someone other than

the producerWater pollution

Market failure because costs are not assigned properly– Govt creates + (education)– Tries to limit – (pollution = costs associated

now back on producers)

CH 3.4 Promoting Growth and Stability

How does the Govt track the business cycle

Govt’s economic goals

Why, how does the govt encourage innovation

Business Cycles

Period of macroeconomic expansion followed by a period of contraction (decline)

– Macro – study of decision making and behavior of entire economies

– Micro – behavior and decision making of small units (indiv., small businesses and families)

Predicting Business Cycles

Gross Domestic Product – GDP – Total value of all the final goods and services produced in an economy

– Used to predict a business cycle and measure the economic well being of a nation’s economy

Public policy is used to stabilize the economy – three goals

– 1. High employmentDesirable unemployment rate 4.5 – 5.5 % Has ranged in the US between 3 and 11 last 60 yrs

– 2. Steady GrowthFor each generation to do better than the last, economy must

grow to offer additional goods and services

– 3. Stability of pricesPrevention of sudden shifts in prices

– Dramatic price increases can alter macroeconomic decisionsRegulation of banks and other financial institutions

Innovation– Increase in productivity = higher standard of

living– Improved technology = more goods produced

from the same amount of resources Operate more efficiently “more, better, faster”

– Govt provides grants/subsidies to industries for research and development$ given to collegesPatents (last 20 years)/ copyrights

– In the Constitution