Capitalism & Economic Capitalism & Economic FreedomFreedom

Under capitalism, the basic Under capitalism, the basic economic decisions are made economic decisions are made through the free interaction of through the free interaction of individuals looking out for their own individuals looking out for their own best interestsbest interests

5 Characteristics of a 5 Characteristics of a free enterprise economyfree enterprise economy

1) Economic Freedom1) Economic Freedom

Choice of where to work and for Choice of where to work and for whom to workwhom to work

Choice of starting a business or Choice of starting a business or quitting a jobquitting a job

Choice to buy, sell, make whatever Choice to buy, sell, make whatever you want (within the limits of the you want (within the limits of the law)law)

2) Voluntary Exchange2) Voluntary Exchange

Buyers and sellers freely and willingly Buyers and sellers freely and willingly engage in market transactionsengage in market transactions

Transactions are made in such a way Transactions are made in such a way that both buyer and seller are that both buyer and seller are (ideally) better off after the exchange (ideally) better off after the exchange (both the buyer and the seller profit (both the buyer and the seller profit from the exchange… the seller wants from the exchange… the seller wants to sell their good/service, the buyer to sell their good/service, the buyer wants to buy the good/service)wants to buy the good/service)

3) Private Property 3) Private Property RightsRights

People can own and control their People can own and control their possessions as they wish (within the law)possessions as they wish (within the law)

This applies to tangible items (cars & This applies to tangible items (cars & houses) as well as intangibles (skills & houses) as well as intangibles (skills & talents) talents)

Private property (and the possibility of Private property (and the possibility of getting more) gives people the incentive getting more) gives people the incentive to work, save, and invest.to work, save, and invest.

They know that if they succeed, they will They know that if they succeed, they will be able to keep any rewards they earnbe able to keep any rewards they earn

4) Profit Motive4) Profit Motive

The possibility of The possibility of financial gain financial gain

The driving force that The driving force that encourages people and encourages people and organizations to improve organizations to improve their material well-beingtheir material well-being

This force is responsible This force is responsible for the growth of the for the growth of the capitalist free enterprise capitalist free enterprise system. system.

5) Competition5) Competition

Capitalism thrives on Capitalism thrives on competitioncompetition

Competition is the Competition is the force that drives force that drives producers to offer producers to offer better quality better quality goods/services at goods/services at lower priceslower prices

The Role of the The Role of the EntrepreneurEntrepreneur

Entrepreneur organizes and manages land, Entrepreneur organizes and manages land, labor, and capital in order to seek profitlabor, and capital in order to seek profit

When an entrepreneur succeeds, everybody When an entrepreneur succeeds, everybody wins: entrepreneurs get profits, workers get wins: entrepreneurs get profits, workers get better paying jobs, consumers get better better paying jobs, consumers get better products, the government gets high levels products, the government gets high levels of economic activity and tax revenues.of economic activity and tax revenues.

Successful businesses also spark other Successful businesses also spark other business to form and compete, thus driving business to form and compete, thus driving the entire economythe entire economy

Role of the ConsumerRole of the Consumer

Consumer dollars = “votes” for a Consumer dollars = “votes” for a good/servicegood/service

Consumers have the final say as to Consumers have the final say as to what is or isn’t producedwhat is or isn’t produced

Consumer sovereigntyConsumer sovereignty: means the : means the consumer is the one in control of the consumer is the one in control of the economy “The customer is always economy “The customer is always right”right”

The Role of GovernmentThe Role of Government 1) To 1) To protectprotect the consumer from the consumer from

dangerous products and unscrupulous dangerous products and unscrupulous businesspeople (USDA, FDA, OSHA, etc.)businesspeople (USDA, FDA, OSHA, etc.)

2) To 2) To provideprovide the consumer with goods and the consumer with goods and services and to services and to consumeconsume goods and goods and services from producers.services from producers.

Provider: streets, parks, education, buses, Provider: streets, parks, education, buses, garbage pickup, etc.garbage pickup, etc.

Consumer: the government is now the Consumer: the government is now the second largest consuming sector of society, second largest consuming sector of society, second only to the actual consumer sectorsecond only to the actual consumer sector

Promoter of National Promoter of National GoalsGoals

The government modifies the The government modifies the economic systems to promote its economic systems to promote its goals. Social security, child labor goals. Social security, child labor laws, minimum wage laws, etc.laws, minimum wage laws, etc.

We live in a modified We live in a modified economic systemeconomic system

People carry on their People carry on their economic activity freely, but economic activity freely, but are subject to some are subject to some government intervention government intervention and regulationand regulation

This is not a laissez-faire This is not a laissez-faire economyeconomy

Exit QuestionsExit Questions

1) In your own words, explain what 1) In your own words, explain what “Voluntary Exchange” means“Voluntary Exchange” means

2) What is the role of the entrepreneur 2) What is the role of the entrepreneur in a free market society?in a free market society?

3) Give 3 examples of goods or services 3) Give 3 examples of goods or services provided to the public by the provided to the public by the government.government.