american free enterprise how much government? too much? not enough?

American Free EnterpriseAmerican Free Enterprise

How much Government?How much Government?Too Much?Too Much?

Not Enough?Not Enough?

Citizen advocates for policy change

Concerns of the public as a whole

Laws and standards in response to interests of the public

FeaturesFeatures

Economic FreedomEconomic Freedom CompetitionCompetition Private PropertyPrivate Property ContractsContracts Self-InterestSelf-Interest Voluntary ExchangeVoluntary Exchange Profit MotiveProfit Motive

FeaturesFeatures

Economic FreedomEconomic Freedom CompetitionCompetition Private PropertyPrivate Property ContractsContracts Self-InterestSelf-Interest Voluntary ExchangeVoluntary Exchange Profit MotiveProfit Motive

AmericanLibertyChoice

FeaturesFeatures

Economic FreedomEconomic Freedom CompetitionCompetition Private PropertyPrivate Property ContractsContracts Self-InterestSelf-Interest Voluntary ExchangeVoluntary Exchange Profit MotiveProfit Motive

Regulates the marketplace: more choices = better quality for lower price

FeaturesFeatures

Economic FreedomEconomic Freedom CompetitionCompetition Private PropertyPrivate Property ContractsContracts Self-InterestSelf-Interest Voluntary ExchangeVoluntary Exchange Profit MotiveProfit Motive

Rules for doing business.Makes it fair.Preserves resources.

FeaturesFeatures

Economic FreedomEconomic Freedom CompetitionCompetition Private PropertyPrivate Property ContractsContracts Self-InterestSelf-Interest Voluntary ExchangeVoluntary Exchange Profit MotiveProfit Motive

Motivates trade.Promotes Efficiency.

Reduces waste.

Private SectorPrivate Sector

Involves transactions of individuals Involves transactions of individuals and businessand business– SportsSports– Telecommunications Telecommunications – Shopping mallShopping mall– GroceriesGroceries– AutomobilesAutomobiles– Housing Housing

Public SectorPublic Sector

Involves transactions of the Involves transactions of the governmentgovernment– Parks and recreationParks and recreation– MilitaryMilitary– EducationEducation– Food policyFood policy– Energy sectorEnergy sector– Mortgage industryMortgage industry

Government ProtectionsGovernment Protections

Health and SafetyHealth and Safety EnvironmentEnvironment ConsumersConsumers PoorPoor

– RedistributionRedistribution– ReeducationReeducation– MedicalMedical– TANFTANF

Fish Game“Tragedy of the Commons”Opportunity Cost of Trade

Free RiderFree Rider

Someone who would not pay for a Someone who would not pay for a

g/s unless it is publicly providedg/s unless it is publicly provided

LibraryLibrary

ParkPark

School School

When have you been a free rider?When have you been a free rider?

Externality Externality

Economic side effect of doing Economic side effect of doing businessbusiness

Effects other than what was intendedEffects other than what was intended– ExamplesExamples

PositivePositiveNegative Negative Market Failures

Technology FactorTechnology Factor

Increase EfficienciesIncrease Efficiencies InnovationInnovation

– Encouraged by Government withEncouraged by Government withFundingFundingEducationEducationResearchResearchLicensingLicensingPatentsPatentsCopyrights Copyrights

R & D GraveyardR & D Graveyard

Difficult to get fundingDifficult to get funding

GovernmentFunding

BusinessFunding

Loss of Funding

Innovation TheoryConceptual

CommercialProductionEngineered

Many Projects Die

Expanded Circular Flow ModelExpanded Circular Flow Model

Government HouseholdsFirms

Imports ExportsProduct Market

Factor Market

Financial Institutions

Finance ServicesInvestment

Phases of the Business Phases of the Business CycleCycle

Expansion

Peak

Contraction

Trough

GDP/GNP numbers are on the rise

Highest point of economic expansion

Lowest point of economic contraction

GDP/GNP numbers are on the decline

Degree of ContractionsDegree of Contractions RecessionRecession

– Prolonged economic contractionProlonged economic contraction2 consecutive quarters of negative 2 consecutive quarters of negative

growthgrowth

DepressionDepression– Recession that is especially long and Recession that is especially long and

severesevere

Recent US cyclesRecent US cycles

1980

1990

2000

1-2 years of correction

5-8 years of growth

Efficiency Efficiency Capital DeepeningCapital Deepening

– Process of raising capital per workerProcess of raising capital per worker– Stock investment makes money Stock investment makes money

available for companies to spendavailable for companies to spend Technological ProgressTechnological Progress

– Growth – (capital + labor)Growth – (capital + labor) Depreciation Depreciation

– Loss in value of capital goodsLoss in value of capital goods