Understanding the Free Enterprise System: Key Concepts Explained
School
McKeel Academy of Technology**We aren't endorsed by this school
Course
ECN MACROECONO
Subject
Economics
Date
Dec 12, 2024
Pages
4
Uploaded by MagistrateFalcon4867
Free Enterprise in America
Adam Smith and the Free Enterprise System Many people credit Adam Smith, a Scottish economist who lived in the 18thcentury, with developing the free enterprise system. Some of Smith’s most important ideas about the free enterprise system appear in the chart on this page. In the appropriate space below, indicate whether you agree Smith’s ideas and whether you think these ideas guide the U.S. economy today.
Name: _________________________________ Date: _________ Period: _________ A Lesson from Starbucks List the ways that Starbucks operates according to the five principles of a free enterprise system: Principle Starbucks application of free enterprise principle Private Enterprise - freedom to choose business Competition Private Property Profit Motive Customer Sovereignty (power) - supply and demand thestrugglesforcustomersprivateownershipIStarbucks is not a government owned businessStrabucks biggest competitor is Dunkin’ Donuts Starbucks is a public property business They
How Does the U.S. Free Enterprise System Operate? Private Enterprise –freedom to choose our businesses In the United States, the decision whether or not you should go into the coffee business or any other kind of ENTERPRISE (business) is basically yours to make. You will decide what fees to charge and what hours to work. Certain laws prohibit you from cheating or harming your customers or other people. But, in general, you will be left alone to run your business as you see fit. Competition Just as you are free to start a coffee business, so is everyone else. The rivalry between sellers in the same field for consumers’dollars is called competition. If your business is profitable, it is likely that others will enter the same business hoping to be as successful as you are. They will be competing with you for the same customers. To win a share of the coffee business, other sellers may try to offer more and better services, or services at lower prices. Because of the pressure of competition, business firms must constantly try to provide the best services and create products at the lowest possible prices. Private Property Private property is a piece of land, a home, or personal possession owned by an individual, a family, or a group. It differs from a public building, or public property, such as a city hall, a park, or a highway, all of which provide a government service for all citizens. In the U.S. economic system, people’s right to buy and sell private property is guaranteed by law. People must use the property in safe and reasonable ways. Profit Motive The main reason why you or any enterprising person organizes a business is to make money. You do this by earning more money than you spend. The amount of money left after subtracting your business expenses from your business income is known as your profit. In the free enterprise system, business firms try hard to keep costs down & increase the income from sales. The better they succeed at this, the higher their profit. Consumer Sovereignty (power) –supply and demand In the end, it is the customers, or consumers, who determine whether any business succeeds or fails. In the U.S. free enterprise economy, consumers are said to have sovereignty –the power or freedom to have the final say. Consumers are free to spend their money for whatever products they choose, wherever they choose. Supply is how much of something is available, demand is how much of something people want or demand. If more people want something, they will be willing to pay more for it. In the same way, prices will go down when the demand goes down. Thus, how consumers choose to spend their dollars causes business firms of all kinds to produce certain goods and services and not others. 1.List at least THREE (3) benefits to a free enterprise system: 2.In a free enterprise system, what role should the government play? 3.What role does the business owner (entrepreneur) play in a free market system? 4.What role does the consumer play in a free market system? 5.Those who improve the quality of life for their customers are granted tremendous wealth. One classic example of entrepreneurial brilliance is Steve Jobbs…For the CONSUMER he For his EMPLOYEES he For himself, the owner he You run the business, you choose the work hours, and the fee from your productEnforces property rights and provides necessary goods and services Enjoy the freedom to come up with new ideas based on the consumers needsRepresents the basic source of demand for products sold in the marketplace