Chapter 3 American Free Enterprise
Section 1- Benefits of Free Enterprise
Constitutional Protections: Property Rights • Fifth Amendment (Federal Government) “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”
• 14 th Amendment (1868) – forbids states from denying any person "life, liberty or property, without due process of law”
• Corporations and individuals share this right
Taxation: • Congress can only tax in the way the Constitution allows.
• Article I gives Congress the power to levy taxes. • Section 2 and 9 require that direct taxes be apportioned according to population so that everyone will pay the same amount.
• 16 th Amendment (1913) – gave congress the right to set taxes based on income.
• Article I Section 10 prohibits the states from passing any “Law impairing the Obligation of Contracts” • Individuals cannot use the political process to get out of a business contract.
Basic Principles of Free Enterprise 1. Profit Motive- the force that encourages people and organizations to improve their material well being.
2. Open Opportunity – everyone can compete the marketplace.
3. Economic Rights – Legal equality – Private Property Rights – Free Contract – Voluntary Exchange – Competition
Role of the Consumer • Consumers are given freedom to make their own economic choices.
• Interest groups- a private organization that tries to persuade public officials to act or vote according to group members interests.
Interest Group: Greenpeace (Environmental Protection)
Interest Group: National Rifleman’s Association (Gun Laws)
Interest Group: Royal Society for the Protection of Birds (Protection of Birds)
Interest Group: People for the Ethical Treatment of Animals (Animal Rights)
• “Fire Brigade” - lobby on a specific issue such as War in Iraq or the Poll Tax. • They usually disband as soon as the issue has been resolved.
The Role of Government • Public disclosure laws – laws requiring companies to provide full information about their products.
• • • • • • • • • • • • • • • r Cereals ready-to-eat, i e QUAKER, CAP'N CRUNCH s p • Nutrition Facts • Serving Size 0.75 cup (1 NLEA serving) e • Amount Per Serving r • Calories from Fat 14 Calories 108 • % Daily Value * • g 2% Total Fat 2g • 2%Saturated Fat 0g r • Polyunsaturated Fat 0g a • Monounsaturated Fat 0g m • 0% Cholesterol 0mg • 8% Sodium 202mg : • 8% Total Carbohydrate 23g • 3%Dietary Fiber 1g F • Sugars 12g • Protein 1g a • Vitamin A 0%• Vitamin C 0%Calcium t 0%• Iron 34% * Percent Daily Values are based on a 2,000 calorie diet. Your daily value may be higher or lower depending on your calorie needs: Calories:2,0002,500 Total FatLess than65g80g Sat FatLess 9 than20g25gCholesterolLess than300mg300mgSodiumLess than2,400mg2,400mgTotal Carbohydrate300g375g Dietary Fiber25g30g Calories per gram: Fat 9 • Carbohydrate 4 • Protein 4 • •
• Found on the instruction sheet of a Conair Pro Style 1600 hair dryer: WARNING: Do not use in shower. Never use while sleeping.
• Found on Axius Sno-Off Automobile Windshield cover: Caution: Never drive with the cover on your windshield.
• FDA Proposed warning label for packages of Frito- Lay’s new Max potato chips, made with Olestra fat substitute: This product contains Olestra. Olestra may cause abdominal cramping and loose stools. Olestra inhibits the absorption of some vitamins and other nutrients. Vitamins A, D, E and K have been added.
• Found on packages of Betty Crocker Fruit Roll-ups: Peel fruit from cellophane before eating.
• Found on a Bungee cord: USE EXTREME CAUTION when stretching cord over load. Keep face and other vulnerable body parts away from potential cord rebound path.
Kellogg’s Pop -Tarts: Warning: Pastry Filling May Be Hot When Heated.
Found on “Bat Man The Animated Series Armor Set” Halloween costume box: PARENT: Please exercise caution — mask and chest plate are not protective; cape does not enable wearer to fly.
television set’s owner’s manual: Do not pour liquids into your television set.
Found on the handle of a hammer: Caution: Do not use this hammer to strike any solid object.
• Found on a butane lighter: Warning: Flame may cause fire.
On packaging for a Rowenta iron DO NOT IRON CLOTHES ON BODY.
Protecting Health, Safety, and Well-Being • Federal and state agencies regulate industries whose goods and services affect the well-being of the public.
MAJOR FEDERAL REGULATORY AGENCIES Major Federal Regulatory Agencies Agency and Date Created Role 1906 Food and Drug Sets and enforces standards for food, drugs, Administration (FDA) and cosmetic products 1914 Federal Trade Enacts and enforces antitrust laws to protect Commission (FTC) consumers 1934 Federal Communications Regulates interstate and international communications by Commission (FTC) radio, television, wire, and satellite, and cable 1958 Federal Aviation Regulates civil aviation, air-traffic and piloting standards, Administration (FAA) and air commerce 1964 Equal Employment Promotes equal job opportunity through enforcement of civil Opportunity Commission (EEOC) rights laws, education, and other programs 1970 Environmental Protection Enacts policies to protect human health and the natural Agency � (EPA) environment 1970 Occupational Safety and Enacts policies to save lives, prevent injuries, and protect Health Administration (OSHA) the health of workers 1972 Consumer Product Safety Enacts policies for reducing risks of harm from consumer Commission (CPSC) products 1974 Nuclear Regulatory Regulates civilian use of nuclear products Commission
Negative Effects of Regulation • Businesses pointed out that the rules were costly to implement, cutting into profits, slowing growth, and forcing them to charge higher prices. EX: phone companies and airlines. • Government spending increased.
Section 1 Review Questions 1. Explain the importance of the following terms in the U.S. Market: (a) profit motive (B) Voluntary Exchange (C) Private Property Rights (D) Competition
SECTION 2 – Promoting Growth and Stability
Tracking Business Cycles • Business Cycle: a period of macroeconomic expansion followed by a period of contraction.
• Microeconomics – the study of economic behavior and decision making of small units, such as individuals, families, households, and businesses.
• Macroeconomics – the study of behavior and decision making of entire economies.
• Gross Domestic Product (GDP): the total value of all final goods and services produced in an economy.
• Free Market economies are subject to business cycles. • Government seeks to stabilize the market.
Government Promoting Economic Strength 1. Employment - High employment - 3% - 6% unemployment is considered healthy
2. Growth - Each generation better than previous - GDP is a measure of such growth
3. Stability - Consumers and investors feel safer with stability. - Stability indicator: general price levels - Stability indicator: financial institutions
Government Promoting Innovation 1. Federal agencies fund scores of research and development projects at universities. EX: Morrill Act 1862 - 1890 - money for agriculture and mechanical studies (Texas A&M)
2. Government owned research institutes - NASA (National Aeronautics and Space Administration)
3. Patent Laws - U.S. Patent gives the inventor of a new product the exclusive right to produce for 20 years.
Section 3- Providing Public Goods
Public Goods • - a shared good or service for which it would be impractical to make consumers pay individually and to exclude non-payers.
Public Good Example: Parks
Public Good Example: Freeways
Public Service Example: Police
Public Service Example: Firefighters
- Costs and Benefits 1. The benefit to each individual must outweigh the cost 2. The total benefits to society must outweigh the total cost.
Public Good Activity: Draft a proposal for a public good that would benefit the students of the school. Groups: 4-6 Purpose: write a convincing proposal that includes the following: 1.A list of the benefits 2.An analysis of the costs, financial and otherwise 3.An explanation of why the benefits exceed the costs
- Free Rider Problem • A person who does not choose to pay for a certain good or service but who benefits from it anyway.
Gutsy Free Riders…
Market Failure: - A situation in which the market does not distribute resources efficiently
Externalities - An economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume.
Positive Externality Neighbor #1
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