Topic Two, Lesson Five: Benefits of Free Enterprise-Economics

Describe the role of the consumer and the entrepreneur in the American economy.

1. Consumer-Have economic freedom to make their own choices; send signals to businesses telling them what and how much to produce or if a good or service is not desirable. 2. Entrepreneur-Decide how to combine resources to create new jobs and services; seek to make profits.

Free Enterprise System: Characteristics

1. Opportunity 2. Incentives 3. Profit Motive 4. Competition 5. Legal Equality 6. Private Property Rights 7. Economic Freedom

Explain the basic characteristics of the U.S. free enterprise system.

1. Private Property Rights-Cornerstone of free enterprise, give people the right to control their possessions and use them as they wish. 2. Economic Freedom-allows people to decide what agreements to enter. 3. Legal Equality-Principle that everyone has the same legal rights. 4. Opportunity-Anyone from any background can achieve success 5. Incentives-Lower prices and higher wages are incentives for consumers and workers to act in certain ways. 6. Profit Motive-Drives individuals and businesses to make decisions that improve their material well-being. 7. Competition-Serves to regulate the free market.

Look at the photo of the automobile dealership. How do consumers benefit from public disclosure laws related to buying a car?

Consumers can learn facts that help them compare various cars and purchase the one that best meets their needs.

Look at the image of the automobile and read the caption. What signal did consumers send to the producer of the Edsel?

Consumers signaled the producer not to produce so many Edsels, that the car was not desirable to it was priced too high.

What kind of person makes a good entrepreneur? List at least two personality traits of a successful entrepreneur.

Fearless, decisive, persistent, smart, passionate, imaginative, flexible, etc.

What characteristic of the free enterprise system allows individuals to paint stripes or stars or polka dots on their cars?

Private Property Rights

Identify the protections in the U.S. Constitution that underline free enterprise.

Right to own property, economic freedom, how government can take individuals and businesses, how government can levy taxes, direct tax on income; guarantees people and businesses the right to make contracts, which are legally binding.

How does the right of voluntary exchange promote competition?

Since consumers can choose to buy from anyone, businesses will compete to make a sale.

What does the cartoon suggest about property rights versus the government's rights of eminent domain?

The cartoon suggests that the practice of taking property through eminent domain is not popular with some people.

Cite evidence to support the idea that government acts to promote the public interest.

The federal government makes sure that producers provide consumers throughout, honest and clear. Information about their products; it sets manufacturing standards, requires that drugs are safe and effective and supervises that conditions in which foods are produced to make sure they are sanitary; it sets environmental rules; local government pass zoning laws.

Why do you think the Constitution was amended in 1913 to allow Congress to tax incomes directly?

The government needed more revenue and felt that a graduated income tax was the fairest and most stable way to do so.

The word eminent can mean "having a superiority." The word domain can mean "rights to the ownership of land." Use these meanings to explain why the government can take someone's private property.

The government, because of its superior position, have supreme authority over all lands under its control.

Highly regulated industries have argued that government rules and regulations stifle competition, resulting in prices that are unnecessarily high. Does this argument make sense? Why or why not?

Yes-Regulations are so costly that many entrepreneurs are kept out of those industries; this allows the few companies within those industries to change prices that are higher than they would be if they had to compare with more companies for consumers dollars.

Describe the role of government in the U.S. free enterprise system.

Carry out its constitutional responsibilities to protect property rights, contracts, and other business activities; promote public interest protect us from pollution, unsafe foods and medicines; provide public disclosure laws; protect public health, safety, and well-being.

Free Enterprise System: Benefits

1. Promotes finical discipline, risk taking, and efficiency. 2. Encourages consumers and producers to come together in the market-place. 3. Allows economic mobility. 4. Maximizes the use of human capital. 5. Encourages individual freedom of choice for consumers and producers. 6. Stimulates production of a variety of goods.

How does competition regulate the free market?

When the quality of several goods is about equal, consumers will choose the product with the lowest price; so to compete successfully, a business cannot simply raise its prices to increase profits; thus competition regulates the market by keeping prices from raising too high.