ECON CH 3-1 BENEFITS FREE ENTERPRISE

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Study the introduction above. Explain why you expect to learn from this lesson.
Read the vocabulary words and look for them in the context of the lesson that follows. You will be tested on these words.

Some of the most famous Americans
have not been politicians, sports
figures, or actors. Do you recognize names
like John D. Rockefeller, founder of
Standard Oil of New Jersey, or Andrew
Carnegie, who started Carnegie Steel
Company, or Bill Gates, the founder of
Microsoft? Each of these people started
with an idea and through persistence,
vision, and effort built that idea into a huge
business success. They made themselves
into the richest people of their time, helped
fuel the economy, and contributed vast
sums of money to programs and charities
for the public good.

A Tradition of Free Enterprise
Today there are over 18 million unincorporated businesses in America, including about 3 million minority-owned businesses. Many of these were started by a single entrepreneur or a small group of friends or family members hoping to earn a living and, perhaps, become successful or even wealthy.

For centuries, people have considered
America to be a “land of opportunity—a
place where anyone from any background
could achieve success through hard work.
Although immigrants no longer expect to
find streets paved with gold, this country
does offer special opportunities that have
allowed business people to be so
successful and have contributed to our
overall economic prosperity.

Why has America been such an economic
success? Certainly the open land, natural
resources, and uninterrupted flow of immigrants with different backgrounds and
experiences all contribute. But a key factor
has also been the American tradition of free
enterprise—the social and political
commitment to giving people the freedom
and flexibility to try out their business ideas
and compete in the marketplace.

Which of the items below are most important for a successful economy?

a.	Free Enterprise	c.	Steady flow of immigrants
b.	Natural Resources	d.	Well educated population

Enterprise exists any time people get together to conduct business. What is unique about American business that makes it so successful?

a.	It is centrally controlled	c.	It promotes equality
b.	It is free	d.	It is scientific

How do the entrepreneurs mentioned in the first paragraph benefit society? Pick all that apply.

a.	they provide goods and services people need and want	c.	they donate money for programs that benefit the poor
b.	they improve the economy and make jobs available for thousands of people	d.	they help society by ensuring that the smartest people will control the poor

Which of the persons listed below could also be included in th group of people discussed in paragraph one above. (pick 2)

a.	Steve Jobs (Apple)	c.	Your school principal
b.	President Obama (US President)	d.	Mark Zuckerberg (facebook)

Which of the items below is NOT a feature of Free Enterprise?

a.	The goods or services produced have to come from more than one company which compete with each other.	c.	People and businesses have a right to private property and can use it as they choose
b.	Businesses and infividuals can decidee for themselves what to produce . People can also decide choose their field of work	d.	People have the right to a free education, free medical, free retirement income and the right to work at any occupation they choose

Businesses can make their own decisions on whom to hire, what to produce, how much to produce, how much to pay thier employees, and how much to charge for their products and services. This is an example of ...

a.	Economic Freedom	c.	Private property
b.	Competition	d.	Socialism

Indivduals and buysinesses have the right to buy and sell as much property as they want. The property of the owners is protected by law. This is an example of

a.	Economic Freedomn	c.	Private Property
b.	Competition	d.	Socialism

Businesses can compete with other businesses in order to incrase their business. This results in better products and more choices for the consumer. This is an example of

a.	Economic Freedom	c.	Private Property
b.	Competion	d.	Socialism

Constitutional Protections
The Bill of Rights to the United States Constitution guarantees certain individual freedoms, such as freedom of speech and freedom of religion. The Constitution also guarantees important rights that allow people to engage in business activities.

Property Rights
The most important of these is the constitutional recognition of property rights. In
many other countries, even in modern times, the king or other ruler has had the power to take people’s property for his own use. Early American statesmen wanted to protect against this, so they included property as a protected right under the Fifth Amendment. It is a right just as important as the other individual rights. The Fifth Amendment states that no person shall

“be deprived of life, liberty, or property,
without due process of law; nor shall
private property be taken for public use,
without just compensation.”

Since the Fifth Amendment applies only to actions by the federal government, the Fourteenth Amendment, ratified in 1868, also includes a due process clause extending the same limitation to the state governments. These due process clauses prevent the government from taking property away from an individual except when there is a public reason—and even then the government must pay the person the fair value of the property that has been taken. These rights apply to corporations as well, so businesses get the same protection from government seizure that individuals enjoy.

Taxation
The Constitution also contains the basic
rules for the ways in which the government
can tax individuals and businesses. Congress
can only tax in the ways the Constitution
allows. Article I gives Congress the power to
levy taxes, but Sections 2 and 9 require that
direct taxes be apportioned according to population so that everyone will pay the same amount. The Sixteenth Amendment, ratified in 1913, first gave Congress the clear right to set taxes based on income.

Finally, the Constitution guarantees people and businesses the right to make binding contracts. Article I, Section 10 prohibits the states from passing any“Law impairing the Obligation of Contracts” This means that individuals or businesses cannot use the political process to get excused from their contracts. No legislature can pass a law changing the terms of someone’s business agreement.

10.

Each of the Bill of Rights starts with the phrase, “the government shall make no laws.” In other words the Bill of Rights put restrictions on the government saying they could not take away the rights you were born with. Which government did it place restrictions on?

a.	Local governments	c.	The U.S. Government
b.	State governments	d.	all governments

11.

The state wants to build a new freeway where your house stands. Which Amendment says the government has to pay you “fair market value” for your house.

a.	First	c.	Fifth
b.	Second	d.	Sixth

12.

Originally the Bill of Rights did not apply to State governments. States could resrict your free speech, religion, etc. Which Amendment made the Bill of Rights apply to the states as well as the U.S. Government?

a.	Fifth	c.	13th
b.	Sixth	d.	14th

13.

The government can only take the property of people and businesses is it is going to be used for

a.	hotel construction	c.	private purposes
b.	public purposes	d.	poor people

14.

Article I of the Constitution says that Congress has the power to tax. What restriction is placed on the power of Congress to tax.

a.	Congress can tax some states at a higher rate than other states.	c.	The taxes have to be the same for everyone
b.	Congress can tax the income of individuals	d.	Taxes can be higher for companies that harm the environmnt

15.

Before the _____ Amendment people did not pay taxes. After this Amendment taxes could be based on the income of the individual and companies.

a.	14th	c.	16th
b.	15th	d.	17th

16.

A contract is an agreement between people and companies. What does the 1st Amendment, Section 10 protect people and companies from?

a.	contracts that favor individuals over businesses	c.	financial contracts
b.	contracts that favor businesses over individuals	d.	using the states to break contracts

Basic Principles of Free Enterprise
Our free enterprise economy has several key characteristics. These include profit motive, open opportunity, legal equality, private property rights, free contract, voluntary exchange, and competition.

Profit Motive
The American economy rests on a ecognition
of the importance of the profit motive—the force that encourages people and organizations to improve their material well-being. Under other economic systems, the government may control business activities, deciding what companies will be formed and how they will be run. In a free enterprise system, business owners and managers make these choices themselves, operating in ways they believe will maximize their profits. This approach forces management to exercise financial discipline because it makes people economically responsible for their own success or failure. It rewards innovation by letting creative companies grow, and it improves productivity by allowing more efficient companies to make more money.

Open Opportunity
The United States economy also benefits
from a strong tradition of open opportunity,
the concept that everyone can compete in
the marketplace. We accept that different people and different companies will have
different economic outcomes, depending on their success in the marketplace. This allows
economic mobility up or down: no matter how much money you start out with, you can end up wealthier or poorer depending on how
well your business performs.

Economic Rights
We also have a commitment to legal equality—by giving everyone the same legal rights, we allow everyone to compete in the
economic marketplace. Countries that restrict the legal rights of women or minorities lose the productive potential of a large portion of their society. Legal equality maximizes a country’s use of its human capital.

Another essential component of the American free enterprise system are private property rights, the concept that people have the right and privilege to control their possessions as they wish. The free enterprise system allows people to make their own decisions about their own property.

The right of free contract allows people to
decide what agreements they want to enter
into. The right of voluntary exchange allows
people to decide what and when they want
to buy and sell, rather than forcing them to
buy or sell at particular times or at specific
prices. Because of all these rights, we have
extensive competition, the rivalry among
sellers to attract customers while lowering
costs. Competition provides consumers with
the choice of a larger variety of goods, most
of which are sold at reasonable prices.

17.

What is the force that encourages people and organizations to improve their material well being?

a.	the profit motive	c.	self-hate
b.	discrimination	d.	dishonestly

18.

In a free enterprise system, who is responsible for the success or failure of a business?

a.	the U.S. government	c.	central planners
b.	state governments	d.	individuals

19.

Open Opportunity means that

a.	everyone shares the wealth	c.	everyone is guaranteed a profit
b.	everyone can participate and compete in the market place	d.	only politically conneced people have an open opportunity to participate in the market

20.

In an Open Opportunity system

a.	new ways of doing things are discouraged	c.	eveyone is guaranteed a basic income
b.	people are pretty much locked into their emplyment and status based on tradition	d.	anyone can succeed depending on their skill as an entreprenuer

21.

Countries that discriminate against certain groups within their society

a.	loose the potential creativity and productivity of those groups	c.	benefit the entire economy because they reduce the competition from those groups
b.	do so because there are not enough jobs for everyone in the society	d.	understand that everyone in the society does not have the abilty to help the economy so they have to be controlled

22.

In the American Free Enterprise system

a.	people have the right to own and control their own private property	c.	ony greedy people own private property
b.	private property is discouraged	d.	the goernment controls private property so the rich do not take advantageof the poor

23.

In the American free enterprise system competition

a.	is harmful because it wastes time and resources	c.	is beneficial to the economy
b.	is harmful because it creates winners and loosers	d.	is discouraged

The Role of the Consumer
A fundamental purpose of the free enterprise system is to give consumers the freedom to make their own economic choices. Consumers make their desires known through their economic dealings with producers. When consumers buy products, they signal to producers what to produce and how much to make.

Consumers can also make their wishes known by joining an interest group, which is a private organization that tries to persuade public officials to act or vote according to the interests of the group’s members. Interest groups have formed around many economic issues, such as taxation, aid for farmers, and land use.

24.

In the Capitalist free enterprise system _____ decide what will be produced.

a.	consumers	c.	corporations
b.	businesses	d.	the government

25.

In 2008 thousands of people joined together to form the “Tea Party.” They were against the government for giving billions of dollars to Wall Street bankers. They were also against higher taxes to pay for government programs because they believed the government was creating enormous debt their grandchildren would have to pay off some day. Their opposition to the government made them

a.	an interest group	c.	racist because the president was black
b.	a hate group	d.	un-American

The Role of the Government
We expect the government to carry out its constitutional responsibilities to protect property rights, contracts, and other business activities in our free enterprise system. Even though such protections are not spelled out in the Constitution, many Americans expect protection from problems that affect us all, such as pollution or unsafe foods.

Information and Free Enterprise
In a free market system, consumer buying
habits determine what goods get produced.
But consumers will not be able to make
informed choices if they cannot get basic
information about the products they are
buying. In other words, educated consumers
will make the free market system work more
efficiently. Because of this, one of the government’s important roles in the economy is to make sure that producers provide consumers with information.

Consumers use government information
to protect themselves from dangerous
products and fraudulent claims. Public
disclosure laws require companies to give
consumers important information about
their products. Often this information
will be attached to the product when it is
offered for sale in stores. You may have
seen fuel efficiency labels on new cars, or
energy efficiency tags on refrigerators or
air conditioners. Using this information,
consumers can evaluate some important
aspects of the products they are considering
buying.

26.

The Constitution of the United States requires the government to protect

a.	our property rights and contracts	c.	the environment
b.	our food supply	d.	our income

27.

What determines which goods are produced in a free market economy?

a.	corporate planning	c.	government planning
b.	consumer purchasing	d.	the supply of natural resources

28.

What is the purpose of “Public Disclosure Laws” on products?

a.	to increase demand for certain products	c.	to increase sales to health conscious people in the socitey
b.	to confuse consumers about the products they purchase	d.	to enable consumers to make intellegent decisions about the products they purchase

The Role of the Government Continued

Protecting Health, Safety, and Well-
Being
Federal and state agencies regulate industries
whose goods and services affect the
well-being of the public.
Although the government does not get
directly involved in running private businesses,
it does impose various restrictions.

Businesses must follow certain environmental
protection rules. Gas stations, for
example, must dispose of used motor oil
properly and ensure that gas tanks cannot
leak into surrounding soil. Both individuals
and businesses are subject to local zoning
laws. These laws may forbid homeowners
from running businesses out of their homes.

In addition, until the mid-1900s, manufacturers
of cars, food, medicine, and other
products affecting people’s health and wellbeing were largely unregulated. Starting in
the 1960s, however, the federal government
and many states became actively involved in
economic matters of public interest, the
concerns of the public as a whole.

A key part of this new government activity was consumer protection. To this end the government sets manufacturing standards, requires that drugs be safe and effective, and supervises the sanitary conditions in which foods are produced. Labels on consumer packages must include information about safe operation of equipment or expiration dates for perishables.

29.

If the economy in the U.S. is “free enterprise,” why does the government get so involved in telling businesses what to do and how to operate?

a.	It believed that people are too dumb to make choices on their own	c.	It is trying to protect the health and safety of the public
b.	The government just like to control things.	d.	It is trying to protect businesses from law suits

30.

Buisnesses experienced the greatest amount of freedom

a.	under President Obama	c.	after the 1960’s
b.	prior to the 1960’s	d.	under Democrat administrations

Negative Effects of Regulation
Government regulation, however, can have
negative effects on both businesses and
consumers. During the 1960s and 1970s,
popular demand for government protection
of consumers and of the environment
resulted in the creation of new governmental
agencies and regulations. Businesses
pointed out that the rules were costly to
implement, cutting into profits, slowing
growth, and forcing them to charge unnecessarily high prices. Highly regulated industries, such as the airlines and telephone
companies, pointed out that government
rules and regulations stifled competition,
resulting in prices that were arbitrarily high.
The growth in government oversight of
industry also raised government spending.

In the 1980s and 1990s, public pressure
for leaner, less costly government resulted in
budget cuts that curtailed some government
regulation of industry. President George W.
Bush’s administration worked to be more
sensitive to the economic considerations
raised by businesses.

Over regulation of industry by the Obama administration has driven many industries out of the United States hurting jobs and investments.

31.

What is the likely consequence of too much business regulation”

a.	less competition, higher prices and fewer new products	c.	more creative products because there is less competition
b.	more competition, lower prices and better products	d.	higher profits for companies and lower prices for consumers

32.

The Obama administration just announced that it intends to take greater control of the internet. This may involve higher taxes and higher fees for service. Which agancy is going to implement this new policty?

a.	EPA Environmental Protection Agency	c.	FTC Federal Trade Commission
b.	FCC Federal Communications Commission	d.	OSHA Occupational Safety and Health Administration

a.	open opportunity	f.	voluntary exchange
b.	interest group	g.	profit motive
c.	free contract	h.	public disclosure laws
d.	private property rights	i.	legal equality
e.	public interest	j.	competition

33.

the concept that people have the right and privilege to control their possessions as they wish

34.

the rivalry among sellers to attract customers while lowering costs

35.

the concept that people may decide what and when they want to buy and sell

36.

the force that encourages people and organizations to improve their material well-being

37.

the concerns of the public as a whole

38.

the concept of giving everyone the same legal rights

39.

a private organization that tries to persuade public officials to act or vote according to group members’ interests

40.

the concept that everyone can compete in the marketplace

41.

laws requiring companies to provide full information about their products

42.

the concept that people may decide what agreements they want to enter into