Basic Principles of Free Enterprise – A Level –Chapter 3/Sec. 1 (pgs. 51-55)
Profit Motive: The force that encourages people and organizations to improve their material well-being
-Operate in ways that maximize profits
-Responsible for own success – rewards innovation, productivity, efficiency
Open Opportunity:
The concept that everyone can compete in the marketplace
-allows economic mobility
Legal Equality: giving everyone the same legal rights
-maximizes a country’s use of human capital (labor)
Private Property Rights: people have the right and privilege to control their possessions as they wish
Free Contract: people decide what agreements they want to enter into
Voluntary Exchange:
Competition:
allows people to decide what and when they want to buy and sell
the rivalry among sellers to attract customers while lowering costs
-provides consumers with a greater variety
Constitutional Guarantees of the American Free Enterprise System:
-5th and 14th amendments  right to private property
– can’t be taken away w/o just compensation
th
-16 Amendment  Govt. can tax based on income
-Article 1  Levy taxes in a fair way and guarantees people and businesses the right to make
binding contracts
Benefits of the Free Enterprise System: See above terms
Role of the Consumer: Consumers buy products and signal to producers what to make and how much
Role of Govt.: *Protect property rights, contracts and other business activities
*Make sure producers provide consumers with information
*public disclosure laws: require companies to provide full info about their products
*Regulate industries that affect the well-being of the public
*Make sure environmental protection laws are followed
*public interest: concerns of the public as a whole Consumer protection
Negative Effects of Regulation:
*Regulation is costly, cuts into profits, slow growth and force higher prices
*Govt. oversight has raised govt. spending
Section Assessment (pg. 55)
1. Explain the importance of the following terms in the U.S. free enterprise system:
-profit motive
-voluntary exchange
-private property rights
-competition
2. What constitutional guarantees underlie the American free enterprise system?
3. Explain at least 3 benefits of the free enterprise system.
4. What are some opportunity costs of a greater govt. role in the economy?
5. Explain how the decisions you make as a consumer influence the economy.