EC15 Student Handout Objective A

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New York University *

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207

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Economics

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Feb 20, 2024

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docx

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Uploaded by MinisterCrownJellyfish107

Private Enterprise Every society develops a system for making decisions about how it will use its resources to meet the needs and wants of its people. Each of these economic systems must answer these three basic questions: 1. What goods and services will be produced? 2. How will these goods and services be produced? 3. For whom will these goods and services be produced? In a private enterprise economic system, these questions are answered by individuals and businesses, not by the government. Individuals and groups (rather than the government) own or control the economic resources—human and natural resources and capital goods—used to produce goods and services. Throughout the history of the United States, private enterprise has enabled the nation to produce more goods and services than any other single country. This success is due to the characteristics of the private enterprise system. Let’s take a look at each of these characteristics. Freedom in the marketplace While you may think of a “marketplace” as a specific location, in economic terms it refers to any place where the buying and/or selling of goods and services occurs. Private enterprise is often called a market economy , or a market system , because markets, not the government, answer the economic questions of what, how, and for whom to produce. The markets in private enterprise are self-regulated and self-controlled. In other words, these businesses are free to choose such things as:  What they wish to produce  Which resources to purchase  What techniques of production to use  How their goods or services will be marketed  What price(s) they will charge  When to close down or go out of business At the same time, consumers may purchase anything that can legally be sold as long as they are able to pay for it. Each time a consumer makes a purchase, s/he is casting an economic vote in the marketplace. These economic votes enable consumers to control what will be produced. In the long run, if consumers don’t buy a product, the producer must change it, replace it, or go out of business. For example, if an automobile manufacturer designs a new car that does not appeal to drivers, the car will not sell. If a movie studio makes a film that the public doesn’t like, the film will LAP-EC-015-CS ©2019, MBA Research and Curriculum Center® People Power 1

not make money. In either case, the product must be replaced by something consumers do like if the producer wants to make a profit and stay in business. It is the responsibility of consumers to be well informed and to make educated choices in the marketplace so that producers will continue to make good products at fair prices. Recently, U.S. automakers have drifted away from producing sedans, as customers are more interested in SUVs, crossovers, and trucks. American carmakers cannot compete with the sedans made by international companies such as Honda and Toyota. Read more about this shift in the marketplace here: https://www.consumerreports.org/general-motors/gm-to-drop-some-sedans/ . Private property Anything of value that people own is considered private property . It may be business property or personal property. It may be in such forms as land, furniture, buildings, resources, jewelry, money, equipment, clothing, or stocks. Ownership of private property also includes ownership of the results of your work. More examples of private property include:  Farmers’ ownership of the crops they raise  Workers’ ownership of the wages they earn  Businesses’ ownership of the goods or services they produce  Individuals’ ownership of the profit that comes from the sale of private property Individuals and businesses in a private enterprise economy are free to decide how to use their private property and when and how to sell it. They can:  Enter freely into contracts involving their private property  Stop others from using their private property  Abuse their private property as long as they are not stepping on the rights of others  Control their private property in any way they choose  Use their private property to make income  Keep any income earned by renting, leasing, or selling their private property Limited government control The private enterprise system that exists in the United States is not a pure private enterprise system because there is a limited amount of government control. This private enterprise system is considered a mixed system —individuals and businesses are the primary economic decision makers, while government helps regulate and control the system. Want to know more about mixed economic systems? Check out the video "What Is a Mixed Economy?" by Mr. Sinn: https://www.youtube.com/watch?v=9EseSEgLsvU . In the United States, the government steps in only to protect citizens; otherwise, it lets them LAP-EC-015-CS ©2019, MBA Research and Curriculum Center® People Power 2

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