Chapter 3 American Free Enterprise Section 1- Benefits of Free - - PowerPoint PPT Presentation

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,

• r property without due process of law;

nor shall private property be taken for public use, without just compensation”

• 14th 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.

• 16th 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

• rganization

that tries to persuade public

• fficials 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.

Cereals ready-to-eat, QUAKER, CAP'N CRUNCH

• Nutrition Facts
• Serving Size 0.75 cup (1 NLEA serving)
• Amount Per Serving
• Calories from Fat 14Calories 108
• % Daily Value *
• 2%Total Fat 2g
• 2%Saturated Fat 0g
• Polyunsaturated Fat 0g
• Monounsaturated Fat 0g
• 0%Cholesterol 0mg
• 8%Sodium 202mg
• 8%Total Carbohydrate 23g
• 3%Dietary Fiber 1g
• Sugars 12g
• Protein 1g
• Vitamin A 0%• Vitamin C 0%Calcium

0%• Iron 34%* Percent Daily Values are based

• n a 2,000 calorie diet. Your daily value may be

higher or lower depending on your calorie needs: Calories:2,0002,500Total FatLess than65g80g Sat FatLess than20g25gCholesterolLess than300mg300mgSodiumLess than2,400mg2,400mgTotal Carbohydrate300g375g Dietary Fiber25g30gCalories per gram: Fat 9 • Carbohydrate 4 • Protein 4

• r

i e s p e r g r a m : F a t 9

• 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

• ther nutrients. Vitamins A, D, E and K have been added.

• Found on packages
• f 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

• bject.

• 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 Administration (FDA) Sets and enforces standards for food, drugs, and cosmetic products Enacts and enforces antitrust laws to protect consumers 1914 Federal Trade Commission (FTC) Regulates interstate and international communications by radio, television, wire, and satellite, and cable 1934 Federal Communications Commission (FTC) Regulates civil aviation, air-traffic and piloting standards, and air commerce 1958 Federal Aviation Administration (FAA) Promotes equal job opportunity through enforcement of civil rights laws, education, and other programs 1964 Equal Employment Opportunity Commission (EEOC) Enacts policies to protect human health and the natural environment 1970 Environmental Protection Agency (EPA) Enacts policies to save lives, prevent injuries, and protect the health of workers 1970 Occupational Safety and Health Administration (OSHA) Enacts policies for reducing risks of harm from consumer products 1972 Consumer Product Safety Commission (CPSC) Regulates civilian use of nuclear products 1974 Nuclear Regulatory 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

• utweigh 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

• ther than the person deciding how much to

produce or consume.

Positive Externality Neighbor #1

Negative Externalities Neighbor #2

Negative Externality: How Neighbor #2 mows the lawn

Negative Externality: How Neighbor #2 Cleans his home

Section 4

Providing a Safety Net

The Poverty Problem

• Poverty Threshold – an income

level below that which is needed to support families or households.

• The Government’s Role
• In a system that discourages government intervention what can the

government do to combat poverty?

• Welfare – government aide to

the poor in the form of redistribution programs

• Welfare began under F.D.R. following

the Great Depression.

• Spending increased considerably

under L.B.J. and his “War on Poverty” in the 1960s.

• Welfare

payments soared in the 70’s, 80’s, and 90’s.

• People

becoming reliant upon welfare.

• Critics point out that welfare hinders

productivity.

Redistribution Programs

• Cash Transfers – direct payments of money to

eligible poor, disabled, or retired people.

• T.A.N.F. (Temporary Assistance for Needy

Families)

• Replaces AFDC (Aid to Families with

Dependent Children) in 1996

• No more direct federal funds
• States receive money
• Must follow federal guidelines and create work

incentives and lifetime limits.

• Social Security
• Developed 1935
• Covers retired and disabled

workers

• Unemployment Insurance
• Funded jointly by State and Federal
• Workers must show they have been

looking for work each week

• Worker’s

Compensation

• State funds

transferred to those who were injured on the job.

• Most employers

must make payments to cover future claims

• In-Kind Benefits
• Government provides free or greatly reduced

goods and services

• EX: Food giveaways, Food Stamps, Legal Aide,

Subsidized Housing.

• Medical Benefits
• Medicare – covers Americans over the

age of 65 as well as disabled

• Medicaid – covers some poor or those not

covered by their employer.

• Education
• Federal, State, Local
• pportunities for

education from preschool through college.

• Faith-Based Initiatives
• Office of Faith-Based and Community Initiatives
• Developed in 2001 by George W. Bush

Chapter 3

• 1. Chose one federal agency and explain

how it acts to limit.

• 2. Why does the U.S. government track and

influence business cycles?

• 3. How does the government support free

enterprise?

• 4. What is the point of unemployment?
• 5. What is the point of social security?