Econ Chap. 3 Section 1 Guided Reading

Taxation:

-Article 1 gives Congress the power to levy taxes. -Section 9 requires that direct taxes be apportioned to states according to population. Thus, taxes collected from each state would be based on the number of people living in the state -16th amendment, ratified in 1913, first gave congress the right to set direct taxes based on income. Under current law, both individuals and corporations must pay federal income tax

Negative Effects of Regulation

-Businesses pointed out that the rules were costly to implement, cutting into profits and slowing growth Stifled competition, resulting in priced that were unnecessarily high -The growth in government oversight of industry also raised government spending because the government had to hire workers to do the work - In the 1980s and 1990s, public pressure for leaner, less costly government resulted in budget cuts that curtailed some government regulation of industry. -Today, government is working to raise concerns with need to protect the public.

Consumer intrest groups

-One consumer interest group is the Consumers Union which works to persuade political leaders to pass laws to protect consumers. -Businesses form interest groups as well. -Interest groups have formed around many economic issues such as taxation, land use and aid to farmers.

Public Disclosure Laws

-government has passed laws to protect us from economic problems that affect us all, such as pollution or unsafe foods and medications. -Congress has passed public disclosure laws. -The Federal Trade Commission Act says that advertisements cannot be deceptive. -The Truth-in-Lending Act requires businesses offering loans to disclose certain information to consumers before they sign a loan agreement.

Basic Protections of the Constitution:

1 .Property Rights 2. Taxation 3. Contracts

Benefits of Free Contract:

1. Allows people to decide what agreements they want to enter into.

Benefits of Open Opportunity:

1. Anyone can compete in the marketplace 2. Allows economic mobility to go up or down.

Basic Roles of Government:

1. Consumer protection 2. Public Disclosure laws. 3. Protect Environment

Benefits of Profit Motive:

1. Drives individuals to make decisions that improves their material well being. 2.Forces business owners to exercise financial discipline. 3.Encourages entrepreneurs to take rational risks and rewards innovation. 4.Improves productivity.

Basic Roles of Consumers:

1. Make Economic Choices 2. Join Interest Groups

Benefits of Legal Equality:

1. Maximizes the country's uses of its human capital (Countries that restrict the legal rights of women or minorities lost the productive potential of a large portion of their society.)

Benefits of Voluntary Exchange:

1. People are not forced to buy or sell particular goods or at a specific price. 2. Encourages competition.

Free Enterprise Basic Principles:

1.Profit Motive 2. Open Opportunity 3. Legal Equality 4. Private Property 5. Free Contract 6. Voluntary Exchange

Benefits of Private Property:

1.give people the right to control their possession and use them and they wish. 2.Allows them to make their own decisions about their own property. 3.Provides an incentive for property owners to use their property wisely and conserve their resources.

How is the principle of open opportunity different from guaranteeing success to everyone in the marketplace?

Because open opportunity allows economic mobility to go up or down no matter how much money you start with, you can end up wealthier or poorer depending on how your business performs

Economic Choices

Consumers send a signal to businesses, telling them what to produce and how much to make.

How is profit motive the driving force of the American economy?

Forces business owners to exercise financial discipline. Encourages entrepreneurs to take rational risks and rewards innovation by letting creative companies grow. Also improves productivity by allowing more efficient companies to make more money.

Protect Environment

Formed the Environmental Protection Agency. Businesses must follow certain rules set by the EPA or by state agencies to protect the environment. -Gas station must dispose of used motor oil properly and ensure that gas tanks cannot leak into surrounding soil. -Zoning laws

What kinds of information is required by public disclosure laws?

Important information about the products or services offered.

Contracts:

Legally binding contracts between people or businesses. -Article 1, section 10 prohibits the states from passing and "Law impairing the Obligation of Contracts." Individuals or businesses cannot use the political process to get excused from their contracts. -No legislature can pass a law changing the terms of someone's business agreement.

How does the principle of voluntary exchange promote competition?

People decide what, when and how they want to buy and sell things. This provides consumers with a large variety of things most of which are sold at reasonable prices.

Property Rights:

The 5th amendment states that "no person shall be... deprived of life, liberty or property, without due process of law; nor shall private property be taken for public use without just compensation." _ The 14th amendment ratified in 1868 extended the same limitation to the state governments. -Due process clauses prevent the government from taking property from its owner except when there is a public reason. -Government must pay the person the fair value of the property that has to be taken. This protection applies to businesses as well as to individuals.

Consumer protection

government sets manufacturing standards, requires that drugs be safe and effective,and supervises the conditions in which foods are produced to make sure they are sanitary. -Labels must include information about safe operation of equipment or expiration dates for perishables.

What is the profit motive?

incentive to make money

What is considered a negative effect of government regulation?

it is expensive for businesses to follow all the rules.

What is one way the Constitution protects the free enterprise system?

it recognizes private property rights

Which group lists the key principles of the free enterprise system?

profit motive, legal equality, private property, voluntary exchange