Characteristics of a Free Enterprise (Market Economy/Capitalism) What is an Economic System? - an organized set of procedures a nation uses in producing and distributing goods and services
- The system is determined by who answers the 3 basic economic questions
Market Economy - Based on individual choice, not government directives.
- Answering the 3 Basic Questions
- What- the goods consumers are willing to buy are produced.
- How- by individually owned enterprises
- For whom- people who can afford them
Markets are driven by consumer demand - Markets are driven by consumer demand
- Most efficient economic system
- Advantages
- Act in your own self-interest
- Wide variety of goods/services
- Lower Prices
- Disadvantages
- only productive resources rewarded
- market failures (monopolies, public goods, etc.)
- unequal income distribution
- Advantages vs. Disadvantages
- Crash Course:
- Capitalism and Socialism-14:00
- https://www.youtube.com/watch?v=B3u4EFTwprM
1. Private Property - Creates incentive to work, save, and invest.
- Right to use, sell, abuse, bequeath
2. Economic Freedom - You have the ability to create your own career path. (ex: what job you want, what school you want to attend, what major you want, etc.)
- firms not truly free to make what they want; will only produce what individuals want to purchase
- The idea that consumers have the ultimate control over what is produced because they are free to buy what they want and to reject what they don’t want.
- Markets respond to consumer demand
4. Competition - Businesses have to compete for the consumer’s dollar. (Ex: different channels on television)
- Results from competition:
- Increases amount of choices
- Increases quality of products
- Lower prices for products
5. Profits (Incentives) - Sellers are free to attempt to maximize their profits.
- Profit acts as an incentive to work harder.
6. Voluntary Exchange 7. Limited Government Involvement - Buyers and sellers must be free to operate with minimal government intervention.
- All real-world market economies have some degree of government involvement.
Adam Smith - Adam Smith is known as the Father of Economics.
- Wrote Wealth of Nations
- In this publication he argued that a nation would be wealthier if it engaged in free trade rather than mercantilism.
- https://www.youtube.com/watch?v=ejJRhn53X2M 6 min.
Characteristics of a Market Economy (free enterprise) - Private Property
- Economic Freedom
- Consumer Sovereignty
- Competition
- Profit
- Voluntary Exchange
- Limited Government Involvement
Market Economy Activity - With a partner or by yourself, draw a picture that represents a characteristic of a Market Economy.
- Your picture must have color and it must be neat.
- Make sure you title your drawing with the characteristic you have chosen.
- Provide a sentence that explains what it is that you drew and how it relates to the characteristic you chose.
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