Capitalism & Economic Freedom

•Under capitalism, the basic economic decisions are made through the free interaction of individuals looking out for their own best interests.

Capitalism• Private citizens own the factors of production.

Free Enterprise• Competition and minimal government

interference. Economic freedom Voluntary exchange Private property rights Profit motive Competition

Economic Freedom• Rights to choose for both the consumer and

the producer.

Voluntary Exchange• Buyers and sellers engage freely in the

marketplace.• Both buyer and seller are better off after the

transaction.• Both believe that what they have obtained is

more valuable than what they had given up.

Private Property

• People own and control their possessions.• Can be tangible (car) or intangible (skills).• Freedom to do as you wish as long as it

does not violate the rights of others.• Serves as an incentive for hard work.

Profit Motive• People will risk their wealth if they are

rewarded by the possibility of earning a profit.

• Profit involves being better off at the end of a transaction than you were before it.

• Profit Motive encourages people to take risks and improve their well-being.

Entrepreneurs

Competition

• Capitalism is fueled by competitionSellers attract consumers with lower

costsBuyers look to find better products at

lower prices

The Entrepreneur• Organizes and manages the factors of

production• Sparkplug and catalyst

When they are successful, we all benefit

Leads to more competition, new products, better quality, lower prices, etc.

The Consumer• Consumer sovereignty – Ruler of the

market• Determine what products are to be

producedOpinions and attitudes are always

changing

The Government• Protector• Provider• Consumer• Regulator• Promoter – Mixed Economy