Free Enterprise in the United States

The Pillars of the Free Enterprise System

• Private Property• The Price System• Market Competition• Entrepreneurship

Private Property

• The capital and other resources owned by individuals rather than governments.

Private Property

• The ownership of private property is guaranteed by the United States Constitution.

The Price System

• The use of prices to allocate scarce resources.

The Price System

• When buyers and sellers make exchanges in markets, they establish prices for goods, services and resources.

Market Competition

• The rivalry among buyers and sellers in the purchase and sale of resources and products.

Market Competition

• Fair competition allows consumers to gain the highest quality of product for the lowest possible price.

Market Competition

•Sellers are also competing for market share against one another.

Market Competition

•Those who succeed earn a profit, which is the money remaining after deducting total cost from total revenue.

Entrepreneurship

•Seeing opportunities and acting on them to introduce new or better goods and services to the market.

Entrepreneurship

•Free enterprise encourages and nurtures entrepreneurs.

Discussion

Think of at least two ways our government encourages entrepreneurs.

The Circular Flow

•Chart 2.2 on page 16 explains how money in a free enterprise system flows.

•Copy this chart into your notes.

Vocabulary: Circular Flow

•Households: include every person in the US despite the dwelling they live in.

Vocabulary: Circular Flow

•Consumers: People who buy and use products and services.

Vocabulary: Circular Flow

•Resource Owners: Owners of the economy’s resources.

Vocabulary: Circular Flow

•Most of the nation’s resources are owned by households.

Vocabulary: Circular Flow

•Goods and services markets: Voluntary exchanges between consumers and business markets.

Vocabulary: Circular Flow

•Resource Markets: Voluntary exchanges between resource owners and businesses (labor).

Uses of Money• In ancient times, most exchanges took place through barter.

• When money is used as a medium of exchange, transactions are easier.

Uses of Money

•Store of Value: By receiving payment in money rather than goods, you can save its buying power for future use.

Uses of Money

•Measure of Value: Money enables us to assess the value of certain goods and services

•Example: The value of labor

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.

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!