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Free Enterprise in the United States
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The Pillars of the Free Enterprise System
• Private Property• The Price System• Market Competition• Entrepreneurship
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Private Property
• The capital and other resources owned by individuals rather than governments.
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Private Property
• The ownership of private property is guaranteed by the United States Constitution.
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The Price System
• The use of prices to allocate scarce resources.
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The Price System
• When buyers and sellers make exchanges in markets, they establish prices for goods, services and resources.
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Market Competition
• The rivalry among buyers and sellers in the purchase and sale of resources and products.
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Market Competition
• Fair competition allows consumers to gain the highest quality of product for the lowest possible price.
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Market Competition
•Sellers are also competing for market share against one another.
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Market Competition
•Those who succeed earn a profit, which is the money remaining after deducting total cost from total revenue.
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Entrepreneurship
•Seeing opportunities and acting on them to introduce new or better goods and services to the market.
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Entrepreneurship
•Free enterprise encourages and nurtures entrepreneurs.
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Discussion
Think of at least two ways our government encourages entrepreneurs.
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The Circular Flow
•Chart 2.2 on page 16 explains how money in a free enterprise system flows.
•Copy this chart into your notes.
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Vocabulary: Circular Flow
•Households: include every person in the US despite the dwelling they live in.
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Vocabulary: Circular Flow
•Consumers: People who buy and use products and services.
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Vocabulary: Circular Flow
•Resource Owners: Owners of the economy’s resources.
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Vocabulary: Circular Flow
•Most of the nation’s resources are owned by households.
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Vocabulary: Circular Flow
•Goods and services markets: Voluntary exchanges between consumers and business markets.
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Vocabulary: Circular Flow
•Resource Markets: Voluntary exchanges between resource owners and businesses (labor).
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Uses of Money• In ancient times, most exchanges took place through barter.
• When money is used as a medium of exchange, transactions are easier.
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Uses of Money
•Store of Value: By receiving payment in money rather than goods, you can save its buying power for future use.
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Uses of Money
•Measure of Value: Money enables us to assess the value of certain goods and services
•Example: The value of labor
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Goals of the Free Enterprise System
•Turn to page 20 in your text book and list the goals of the free enterprise system in your notebook.
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Different Economic Systems
• Free Enterprise-Defined in Chapter 2• Command- Government control of all
economic decisions.• Traditional-most people complete the
same economic tasks• Mixed-elements of more than one type
of economy. ALL SYSTEMS ARE MIXED!