The Private Enterprise System

Principles of BusinessProject 2 :: What Would You Do?

Economic Systems

Every society develops a system for making decisions about how it will use its resourcesThese economic systems must answer the following questions: What goods and services will be produced? How will these goods and services be

produced? How will these goods and services be

distributed to the consumer?

Private Enterprise System

In this system, the questions are answered by individuals and businesses, not the governmentIndividuals and groups own or control the economic resources – human and natural resources and capital goods – to produce goods and servicesThe characteristics of the private enterprise system has enabled the nation to produce more goods and services than any other single county

Freedom in the Marketplace

In economic terms, marketplace refers to any place where buyers and/or selling of goods and services occurPrivate enterprise is often called a market economy or a market system because markets answer the questions of what, how, and for whom to purchase

Free to Choose

Markets in private enterprise are self-regulated and self-controlledThey are free to choose: What they wish to produce Which resources to purchase What techniques of production to use How their goods or services will be marketed What price(s) they will charge When to close down or go out of business

Economic VoteEach time a consumer makes a purchase, s/he is casting an economic vote (dollar vote) in the marketplaceThese economic votes enable consumers to control what will be producedIf consumers do not buy a product, the producer must change it, replace it, or go out of businessIt is the responsibility of the consumer to be well informed and to make educational choices

Private Property

Anything of value that people own is considered private property Business property

Buildings, land, equipment, etc. Personal property

Furniture, jewelry, money, clothing, etc.

Ownership includes the results of your work

Private Property

Farmers’ ownership of the crops they raise

Workers’ ownership of the wages they earn

Businesses’ ownership of the goods or services they provide

Individuals’ ownership of the profit that comes from the sale of private property

Private Property

Individuals and businesses in a private enterprise economy are free to decide how to use their private property and when and how to sell it Enter freely into contracts involving

their private property Stop others from using their private

property

Private Property

Abuse their private property as long as they are not stepping on the rights of others

Control their private property in any way they choose

Use their private property to make income

Keep any income earned by renting, leasing, or selling their private property

Limited Government Control

The private enterprise system in the U.S. is not a pure private enterprise system because there is a limited amount of government control Mixed system – individuals and

businesses are the primary economic decision makers, while government helps to regulate and control the system

Mixed System

Government steps in to protect citizens

The role of government has gradually expanded partly because Americans want certain problems, like inflation, pollution, and unemployment, solved

Competition

The rivalry between two or more businesses to attract scarce customer dollarsBusinesses compete by offering better credit options, improving goods and services, creating new goods and services, and providing better service

The Profit Motive

Profit is the monetary reward business owners receive in return for taking the risk involved in starting a businessThe desire to make a profit is called the profit motive (forms the economic basis for the private enterprise system)Many people consider making a profit the greatest motivating factor in the private enterprise system

The Price-directed System

A private enterprise system is often called the price-directed system because price determines what consumers buy, which jobs they will take, the success or failure of businesses, and the types of products that will be producedSupply and demand work together to determine prices

Weaknesses

While the private enterprise system is the most productive in the world, it does have some negative aspects, or disadvantages Production drops when sales are low;

companies may lay off workers or go out of business; results in periods of unemployment

Weaknesses

Poverty has not been eliminated Property and income are not

distributed equally; some own a lot, others own nothing

In a private enterprise system, individuals and groups (rather than the government) own or control the economic resources

Summary

Characteristics include: Freedom in the marketplace Private property Limited government control Competition The profit motive Price-directed system

Still, unemployment, poverty, and unequal distribution of wealth occur in the private enterprise system

Economic Freedom

Freedom to choose Your own personal economic goals The kind of work you do Whether you want to become an

entrepreneur, to own a business by yourself Important to private enterprise system;

without entrepreneurs, the system would have much less change, fewer new products, and less efficient use of resources

Economic Freedom

Freedom to own, use, buy, and sell property Private property is anything of value

that you own (business or personal property)

Make decisions about how your private property will be used

How much of your income you want to save, spend, or invest

Economic Freedom

Free to buys goods and services anywhere

Freedom to compete Free to use your abilities to compete

for a job, scholarship, etc. Allows you to market your assets to

your best advantage

Limits to Economic Freedom

Cannot buy anything and everything you might like to Limiting factor is competition among

buyers; always people wanting to buy the same things

Limited by own choices; if you choose to buy one thing you may not have money to buy another

Limits to Economic Freedom

Laws that have been created to protect people; workers in medicine, construction, etc.; laws require specialized training or must pass examinations; cannot sell illegal drugs, stolen property, or services for which s/he is not trained or licensed to perform

Taxes collected from the government restricts economic freedom since taxpayers cannot use all of their income for their own purposesTaxes are important, however, because they help pay for highways, public schools, & police

Review!

Alex owns a guitar, several books, a car, and a telescope. Alex’s possessions are examples of: Equal distribution Economic resources Capital goods Private Property

Private property. Private property is anything of value that people own. It can be business or personal property. Other examples of private property include land, jewelry, buildings, and clothing. Economic resources are the human and natural resources and capital goods used to produce goods and services. Capital goods are manufactured or constructed items that are used to produce goods and services. Equal distribution of goods and services is not possible, even in economic systems set up for that purpose

Which of the following is a disadvantage of private enterprise

A. Periods of unemployment B. Elimination of poverty C. Careful use of resourcesD. Equal distribution of income

APeriods of unemployment. In the United States, production levels can drop due to decreased sales. When this happens, companies may have to lay off workers and/or go out of business. Other disadvantages of private enterprise are poverty, unequal distribution of income and property, and careless use of resources

Private Enterprise is based on the idea that everyone is better served when

A. businesses regularly increase their prices.B. individuals are free to set their own goals.C. government determines where individuals will work.D. economic resources are controlled by the government. 

BIndividuals are free to set their own goals. A private enterprise system is based on the belief that when people are free to make economic choices and to set economic goals, they work harder to achieve those goals. These citizens also believe in limited government control and freedom of employment. Regular increases in prices do not necessarily mean that everyone will be better served.

One of the freedoms provided to individuals by the private enterprise system is the freedom to choose

A. which laws they will obey.B. how their employers pay them. C. which taxes they will pay.D. where they will work.  

DWhere they will work. U.S. citizens are free to choose the kind of work they would like to do in order to make a living. They are limited by their own interests, abilities, and training. They are not, however, free to choose which taxes to pay, which laws to obey, or how their employers pay them (e.g., weekly or monthly).

Why are entrepreneurs important in a private enterprise system

A. They encourage the development of new products.B. They use resources inefficiently.C. They get rid of competition.D. They are responsible for deceptive advertising.

AThey encourage the development of new products. Entrepreneurs are people who take all the risks and receive the profits from starting their own businesses. Because of entrepreneurs, the private enterprise system changes, has more new products, and uses resources more efficiently. Government keeps businesses from using deceptive advertising and from limiting competition.