Starter

How do specialization and division of labor work together?

Market EconomyCapitalism and Free Enterprise

You will learn about the basic ideas behind capitalism and free enterprise.

Features of Capitalism

The US economy is built on capitalism & free enterprise.

Capitalism is an economic system in which private citizens own & use the factors of production to seek a profit.

Businesses try to produce the products people want most. Because of this, we use the term consumer sovereignty to describe the consumers as ruler of the market.

Capitalism Continued

Under capitalism we also

have private property

rights. Capitalism thrives on

competition. Competition

results in efficient production,

higher-quality products, &

more satisfied customers.

The Spread of Capitalism

Capitalism developed gradually over hundreds of years.

As trade increased, people began to invest money to make profits.

In The Wealth of Nations, Scottish economist Adam Smith describes the principles of economics for the first time.

From the writings of Smith & others came the idea of laissez-faire, meaning “to let alone”. According to this philosophy, gov’t should not interfere in the marketplace. Gov’ts role is to ensure free competition

Free Enterprise

Free enterprise is an economy in which competition is allowed to flourish with a minimum of gov’t interference.

Choice is a key element for free enterprise. We are free to choose our occupation, goods we buy, & where we work. Since we have the choice we take responsibility for bad choices. (If a person starts a business & fails, the gov’t usually will not help them out.)

Profit is the money left over after

all costs of production have been paid. The profit motive is the driving force

behind free enterprise & capitalism. People are willing to invest in a business

venture & risk losing their investment for a chance to earn a profit.