The Private Enterprise System

1. The Private Enterprise System Principles of Business Project 2 :: What Would You Do?

2. Economic Systems • Every society develops a system for making decisions about how it will use its resources • These 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?

3. Private Enterprise System • In this system, the questions are answered by individuals and businesses, not the government • Individuals and groups own or control the economic resources – human and natural resources and capital goods – to produce goods and services • The characteristics of the private enterprise system has enabled the nation to produce more goods and services than any other single county

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

5. Free to Choose • Markets in private enterprise are self-regulated and self-controlled • They 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

6. Economic Vote • Each time a consumer makes a purchase, s/he is casting an economic vote (dollar vote) in the marketplace • These economic votes enable consumers to control what will be produced • If consumers do not buy a product, the producer must change it, replace it, or go out of business • It is the responsibility of the consumer to be well informed and to make educational choices

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. Competition • The rivalry between two or more businesses to attract scarce customer dollars • Businesses compete by offering better credit options, improving goods and services, creating new goods and services, and providing better service

14. The Profit Motive • Profit is the monetary reward business owners receive in return for taking the risk involved in starting a business • The 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

15. 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 produced • Supply and demand work together to determine prices

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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 purposes • Taxes are important, however, because they help pay for highways, public schools, & police

24. 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

25. 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

26. Which of the following is a disadvantage of private enterprise • A. Periods of unemployment • B. Elimination of poverty • C. Careful use of resources • D. Equal distribution of income

27. A • Periods 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

28. 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.

29. 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.

30. 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.

31. D • Where 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).

32. 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.

33. 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.