Evaluating Economic Performance and Capitalism

1. Evaluating Economic Performanceand Capitalism Unit One, Lesson Six

2. Economic and Social Goals • Every society has ideals and goals for what they want in their system • This could include high standard of living or freedom • In the U.S., the following are our economic goals, and most of these goals are strived for in other systems as well

3. Economic and Social Goals • Economic freedom: Freedom to make your own decisions, produce what they want, etc • Economic efficiency: Benefits gained are greater than costs incurred • Economic equity: Justice, impartiality, and fairness

4. Economic and Social Goals • Economic Security: Protection from adverse economic events (why we have Social Security, Unemployment, Medicare, etc) • Full Employment: Provide as many jobs as possible

5. Economic and Social Goals • Price Stability: Stable prices (no inflation—a rise in the general price level). High inflation increases interest rates which discourages businesses from borrowing and spending. Inflation hurts those with fixed incomes (incomes that do no increase even though prices go up). • Economic Growth: We want better jobs, products, services, and opportunities in the future

6. Capitalism • Our economy, as well as most market economies, is based on capitalism. • Capitalism is a system where private citizens (many of whom are entrepreneurs) own the factors of production. • Free enterprise is another term used to describe the U.S. economic system.

7. Capitalism • In a free enterprise system, competition is allowed to flourish with minimum government influence.

8. 5 Characteristics of a Free Enterprise System • Economic freedom • Voluntary exchange—buyers and sellers freely and willingly engaging in market transactions • Private property rights—the privilege that entitles people to own and control their possessions as they wish

9. 5 Characteristics of a Free Enterprise System • Profit Motive—people are free to risk their savings or any part of their wealth in a business venture --profit is the extent to which persons or organizations are better off at the end of a period than they were at the beginning --profit motive—the driving force that encourages people and organizations to improve their material well-being

10. 5 Characteristics of the Free Enterprise System • Competition—the struggle among sellers to attract consumers while lowering costs—is the driving force that keeps prices low in a free enterprise system

11. The Role of the Entrepreneur • Entrepreneur—risk taking individual in search of profits • Organizes and manages land, capital, and labor in order to seek profit • In their search for profits, entrepreneurs can lead to a chain of events that involves new products, greater competition, more production, higher quality, and lower prices for consumers

12. The Role of the Consumer • Consumers have power in the free enterprise system because they determine which products are ultimately produced • Consumer sovereignty—describes the role of the consumer as sovereign, or ruler, of the market • Consumers decide what is and is not produced as they purchase goods and services

13. The Role of Government • Protector—enforces laws • Provider and Consumer—provide public services (such as parks, roads, etc) and consumes factors of production to produce these services • Regulator—preserves competition in the marketplace (no monopolies) • Promotes national goals