Chapter 3. the-high-cost-of-low-price/ the-high-cost-of-low-price

American Free Enterprise System

Chapter 3

http://topdocumentaryfilms.com/wal-mart-the-high-cost-of-low-price/

Capitalism is an economic system based on the private ownership of the factors of production

Capitalist system is known as a free enterprise system, anyone to start a business or enterprise for a profit

http://topdocumentaryfilms.com/design-new-business/

What is a Free Enterprise System?

Government has little interference in free enterprise◦ Protect or encourage competition ◦ Enforce contracts

Public Interest Theory – protect consumers from fraudulent, inferior, and unsafe products

Public Choice Theory – government benefit existing industries by make it more difficult for new business enter into market

Tollbooth Theory – main beneficiaries of the regulations are politicians

Government Involvement

Private property is a freedom we enjoy in the U.S. We are able to buy and sell at will.

Open Opportunity is another freedom in our economy◦ Each person has a free choice to enter into the

market industry This gives everyone the same economic

rights under the law called Legal Equality◦ Fail or succeed

Another element is Free Contract, a choice of agreement to enter into

The most ideal reason for entering into free enterprise is profit motive. ◦ The ability to exercise the act of earning financial

wealth from economic activities

Page 74, Figure 3.2◦ What legal rights are built into the free enterprise

system? http://www.learner.org/series/econusa/unit04/

What is the difference between open opportunity and legal equality?

What beside profit, if anything, might motivate a person to start a business?

What fads like the pet rock have you seen come and go?

What do these fads show about free enterprise?

How a Free Enterprise System Works

Where will you open your restaurant? Pg. 75

◦ What are the advantages of being in the first location, the busy mall? What are the disadvantages?

◦ What are the advantages and disadvantages of the second choice, in the small strip mall?

Your Economic Choices

Reviewing Key Concepts questions 1-5

Critical Thinking question 7

How Can Entrepreneurs Control Costs? Activity

Joslin’s Cost of Doing Business Is More Always Better?

Page 77 Section 1 Assessment

Which entrepreneur is in a better position to control fixed costs of production if there is a decline in the demand for bats-the entrepreneur with the automated bat-production machine or the entrepreneur who provides bats made by hand? What does this show about fixed and variable costs?

The Roles of Producers and Consumers

Consumers looks for the best deal for their money

While the Producers are looking to make the most profit

Allocate Resources?

Profit is the reason why individuals take the risk to enter entrepreneurship and allocate scarce resources

Consumers assist in allocating resources by choosing the products they want. This is considered “voting”

Modified Free Enterprise Economy◦ Some government involvement

Figure 3.4, page 80◦ Government in the Circular flow Chart

The government is a producer and consumer in the Product Maker (buying products), Factor Market (buying resources), Businesses, and Households (good and services by collection of taxes)

Government in the U. S. Economy

Reviewing key concepts questions 1 – 4 Critical Thinking question 10

Section 2 Assessment , pg. 83

Only the buyer and seller involved in the interaction bears the cost or reap the benefits, this is considered a Normal Market Function

However, if a buyer and seller, not involved in the interaction, benefit or pay part of the cost, it is considered a Market Failure

Then government provides the goods and services to be consumed are called public goods. The government collects taxes to pay for these goods such as national defense.

Government and Free Enterprise

There are many who do not pay for a service or good however benefits from it is called free rider.

Example: Fire works for holiday and law enforcement

Public and Private sector share the feat of the infrastructure that benefits a smooth functioning of society, such as ◦ Highways, mass transit, power, water, sewer

systems, education, and health care

Public and Private Sector

Market Failure◦ Externality is a side effect of a product

◦ Negative externality is imposing cost on individual that are not involved Industrial pollution

◦ Positive externality creates benefits for people who were not involved Subsidy – government payment paid through the

collection of taxes

Managing Externalities

Government provides programs that benefit the elderly and the less fortunate from economic hard time through a public safety net

Redistributing income◦ Poverty level

Economic growth Transfer payments – transfer income from one group

to another group without providing any contribution Public Transfer Payments is a payment in which the

government transfers income from taxpayers to recipients who do not provide anything in return Command economy (U.S. mixed economy)

Public Transfer Payments

Reviewing Key Concept questions 1 – 5 Critical Thinking questions 7, 8, and 9

Section 3 Assessment