Economics / Unit 2: Economic Systems
2.6 Free Enterprise in the United States
Notes
The U.S. economy is based on free enterprise (capitalism): private ownership and voluntary exchange with limited government.
- Private property rights: people may own and use property, protected by law (including the Fifth Amendment's protection against taking property without due process).
- Profit motive: the desire for gain drives people to start businesses and take risks.
- Voluntary exchange: buyers and sellers trade freely because both expect to benefit.
- Competition: rivals compete for customers. Consumer sovereignty means consumers' choices decide what gets produced.
- Freedom of enterprise: people can start and run businesses as they choose, within the law.
- Roles of government: protect property rights and enforce contracts, keep competition fair, protect consumers, workers and the environment, provide public goods (roads, defense), offer a safety net, and work to keep the economy stable.
- Economists and voters disagree about how large these roles should be. Some stress limited government and free markets; others stress government action to reduce inequality and risk.
Practice
A shopper buys a used guitar for $150 because she values it more than the money, and the seller values the money more than the guitar. This illustrates:
Both sides trade freely because each expects to be better off.
When most shoppers stop buying flip phones, companies stop making them. This illustrates:
Consumers' spending choices determine what businesses produce.
Which is a role of government in a free enterprise system?
Markets need laws that protect property and make agreements enforceable.
Ready for more? Take the Unit 2 test.