Mr. McFarling
Economics
Capitalism, Free Enterprise
and Types of Economies
Capitalism
• Capitalism- a system in which people
like you and me own our own labor, and
the property, equipment, and other
resources to make money.
Characteristics of a Free
Enterprise Economy
1.
2.
3.
4.
5.
Economic freedom
Freedom to enter into contracts
Voluntary exchange
Private property
Profit motive
Economic Freedom
• You are free to:
–
–
–
–
Choose your job
Choose where and when you work
Work for yourself or someone else
Leave your job and to move to another job
• Businesses are free to:
– Choose which workers they want
– Figure out how much business they want to do
Voluntary Exchange
• People and businesses want to do
business with each other. Nobody
makes them do it.
• When people and businesses do
business, they are made better off.
Private Property and Freedom to
Enter into Contracts
• People have the right to do what they want with
their own property.
• Private property gives people the motivation to
work hard, save their money and invest.
• Private property motivates people to get ahead in
life.
• Contracts are agreements made between people
to buy and sell.
• Contracts are can be written or spoken, but either
way we are legally bound to keep our
agreements.
Profit Motive
• People are free to risk what they already
own in order to make even more money.
• The chance at becoming rich makes many
people become entrepreneurs.
• Profit– how much better off a person or business is
after a period of time.
• Profit Motive– the force that makes people and businesses
want to get more money
The Role of the Entrepreneur
• The entrepreneur brings together people,
resources and equipment to make a profit.
• Entrepreneurs motivate the economy by
always coming up with new ideas and
ways of doing things.
• Because of all the money that
entrepreneurs make, this makes other
people want to go into business and
compete, making all of us better off.
The Role of the Consumer
• Consumers are people like you and me
who buy things and pay for services.
• We, the consumers, rule the free enterprise
economy.
• Our choices decide what is made, bought
and sold in the economy.
• CONSUMER SOVEREIGNTY
The Role of the Government
• Protector
– The government makes and enforces laws against:
• False advertising, unclean food and medicine,
pollution and unsafe products
– The government enforces laws against discrimination in the work
place.
– The government enforces contracts.
• Provider and Consumer
– The government provides products and services that
business don’t provide, like: schools, roads, an army, and welfare.
– The government is also a consumer because it buys things from
businesses, like: fighter jets, aircraft carriers, submarines and tanks.
• Regulator
– The government regulates or makes rules for businesses to follow.
For example, the government decides which frequency radio
stations can broadcast on. The government also makes rules for
running nuclear power plants. And so on and so on…….
Mixed Economy
• b/c of the G’s role. We are a mixed,
modified free enterprise economy.
ECONOMIC
SYSTEMS
TRADITION ECONOMY

Characteristics
 Resources
are based on rituals,
habits or customs
 People are not free to make
their own decisions
 What the people who came
before them did is what
decisions are based on
TRADITIONAL ECONOMY
Examples:
African
tribal
communities
• Inuits
• Australian
Aborigines
•
TRADITIONAL ECONOMY
Advantages
 People
know WHAT to produce
and HOW to produce it
Both are decided by previous
groups and generations
 Tradition determines FOR
WHOM to produce
TRADITIONAL ECONOMY

Disadvantages
No new ideas or
innovations
 People are
punished for
thinking
differently
 Lack of progress
leads to lower
standard of
living

COMMAND ECONOMY
 Characteristics
A central authority
makes all the
WHAT, HOW, and
FOR WHOM
decisions
 People have little
influence over
basic economic
questions

COMMAND ECONOMY
 Examples:
 North
Korea
 Cuba
 Former
Soviet
Union and
Eastern
European
Communist
countries
COMMAND ECONOMY

Advantages
 Can
change its economic direction
quickly
Example – Soviet Union moving
from agriculture to industrial
economy very quickly
 Human services are available to
everyone
Usually little or cost
Quality can vary
COMMAND ECONOMY

Disadvantages
 Does not meet the wants of the consumer
 No incentive for people to work
 People work just hard enough not to get in
trouble
 Large bureaucracy which slows everything
down
 No flexibility for day-to-day problems
 No way to get ahead
 No reward for good or new ideas
MARKET ECONOMY

Characteristics
People act their own best
interest to solve the
WHAT, HOW, and FOR
WHOM economic
questions
 Buyers and sellers create
a markets to exchange
goods and services
 People’s decisions act as
“votes”


By spending money on
something, you vote that
you like it
MARKET ECONOMY
Examples:
 United
States
 Japan
 Most of
Europe
 Canada
MARKET ECONOMY

Advantages


Can adjust to changes
People have individual freedom

Sellers free to make what they think will sell and buyers
are free to buy it or not
Not a lot of government interference
 No central power making all the decisions
 Variety of goods


People make anything they want to sell
MARKET ECONOMY
 Disadvantages
Does not supply services to everyone
 Uncertainty of workers and firms
People can be fired
Businesses can move
 Markets can fail, if:
No competition
Resources cannot be moved
No information on alternatives
