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Chapter 2: The United States Economy

Chapter 2: The United States Economy. FREEDOM OF ENTERPRISE & CHOICE. PRIVATE PROPERTY. ROLE OF SELF-INTEREST. COMPETITION. CAPITALIST IDEOLOGY. FREEDOM OF ENTERPRISE & CHOICE. PRIVATE PROPERTY. ROLE OF SELF-INTEREST. COMPETITION. CAPITALIST IDEOLOGY. LARGE NUMBERS. ENTRY &

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Chapter 2: The United States Economy

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  1. Chapter 2: The United States Economy

  2. FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY ROLE OF SELF-INTEREST COMPETITION CAPITALIST IDEOLOGY

  3. FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY ROLE OF SELF-INTEREST COMPETITION CAPITALIST IDEOLOGY LARGE NUMBERS ENTRY & EXIT

  4. FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY ROLE OF SELF-INTEREST COMPETITION ACTIVE, BUT LIMITED, GOVERNMENT MARKETS & PRICES CAPITALIST IDEOLOGY

  5. The Importance of Property Rights

  6. Private Property Rights • Property rights: The right to use, control, and obtain benefits from a good or service. • Private property rights involve: • the right to exclusive use. • legal protection against invaders. • the right to transfer to another.

  7. Private Property and Incentives • Private ownership is a key to prosperity because it provides people with a strong incentive to take care of things and develop resources in ways that are highly valued by others. • Private owners can gain by using their resources in ways beneficial to others. • They have a strong incentive to care for and manage what they own. • They have an incentive to conserve for the future (especially if the property’s value is expected to rise).

  8. Private Property and Incentives • Private ownership is a key to prosperity because it provides people with a strong incentive to take care of things and develop resources in ways that are highly valued by others. • With private property rights, owners are liable if their property is used in a manner that damages the property of others. • Private ownership links responsibility with the right of control. • In contrast, commonly owned property will be poorly maintained and over-utilized rather than conserved for the future.

  9. Private Property and Markets • When private property rights are protected and enforced, permission of the owner is required for use of a resource. • If you want to use a good or resource, you must either buy or lease it from the owner. • Individuals are faced with the cost of using scarce resources. • Market prices provide a strong incentive for private owners to consider the desires of others and to use and develop resources that are highly valued by others.

  10. 1. (a) Can private owners do anything they want with the things that they own? (b) Why is private ownership important? (c) Do the owners of land and buildings near your campus have an incentive to use those assets to provide things that students value highly? Why or why not? Questions for Thought: 2. Does a 60 year old tree farmer have an incentive to plant and care for Douglas fir trees that will not reach optimal cutting size for 50 years? Explain.

  11. Questions for Thought: 3. Selling your organs is a violation of federal law, a felony punishable by up to five years in prison or a $50,000 fine. Because of this, in September 1999 eBay intervened when a person put one of his kidneys up for sale on eBay (the bidding reached $5.7 million before it was pulled). Is the United States a better place to live because such transactions are prohibited? Why or why not?

  12. 1 Hong Kong 4 New Zealand 5 United States 13 Chile 14 Canada 20 Germany 75 Malaysia 93 Brazil 106 Poland 144 Vietnam 151 Iran 152 Cuba GLOBAL PERSPECTIVE Index of Economic Freedom, Selected Nations Rankings among 156 nations, 2000 FREE MOSTLYFREE MOSTLYUNFREE REPRESSED Source: Heritage Foundation & The Wall Street Journal

  13. ECONOMIC GOALS • Economic Growth • Full Employment • Economic Efficiency • Price-Level Stability • Economic Freedom • Equitable Distribution • Economic Security • Balance of Trade Tradeoffs!

  14. CIRCULAR FLOW MODEL RESOURCE MARKET BUSINESSES HOUSEHOLDS PRODUCT MARKET

  15. CIRCULAR FLOW MODEL RESOURCE MARKET RESOURCES INPUTS BUSINESSES HOUSEHOLDS PRODUCT MARKET

  16. CIRCULAR FLOW MODEL $ COSTS $ INCOMES RESOURCE MARKET RESOURCES INPUTS BUSINESSES HOUSEHOLDS GOODS & SERVICES GOODS & SERVICES PRODUCT MARKET

  17. CIRCULAR FLOW MODEL $ COSTS $ INCOMES RESOURCE MARKET RESOURCES INPUTS BUSINESSES HOUSEHOLDS GOODS & SERVICES GOODS & SERVICES PRODUCT MARKET

  18. CIRCULAR FLOW MODEL $ COSTS $ INCOMES RESOURCE MARKET RESOURCES INPUTS BUSINESSES HOUSEHOLDS GOODS & SERVICES GOODS & SERVICES PRODUCT MARKET $ REVENUE $ CONSUMPTION

  19. CIRCULAR FLOW MODEL Chapter Conclusions $ COSTS $ INCOMES RESOURCE MARKET RESOURCES INPUTS BUSINESSES HOUSEHOLDS GOODS & SERVICES GOODS & SERVICES PRODUCT MARKET $ REVENUE $ CONSUMPTION

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