People Power

LAP-EC-909 ©2024, MBA Research and Curriculum Center®
People Power (The Private Enterprise System)

A – Discuss the characteristics of a private enterprise system.
B – Describe the economic freedoms that exist in a private enterprise system.

Case Study Example:
  - Sam's Business Venture:
    - Sam wants to earn extra money for a whitewater rafting trip.
    - Graduation is approaching, and demand for senior pictures among friends is high.
    - Sam has taken photography classes and owns a camera, intending to study photography in college.
    - She prints flyers advertising her senior photo service.
    - Within three weeks, she earns over $400.
  - Implication: This case exemplifies a private enterprise system where individuals can pursue ventures freely and profit from their endeavors.

Every society must develop a system to allocate resources to meet the needs and wants of its people.
Three Basic Economic 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 system, these questions are answered by individuals and businesses, not the government.
Ownership of Resources:
  - Individuals and groups (not the government) own or control the economic resources:
    a. Human resources
    b. Natural resources
    c. Capital goods
  - Private enterprise has enabled the U.S. to produce more goods and services than any other nation.

Marketplace Characteristics:
  - A marketplace is any location where buying and selling occurs.
  - Private enterprise operates as a market economy, where markets (not the government) answer production questions.
  - Self-regulation: Markets in a private enterprise are self-regulated.
  - Business Freedoms:
    - Businesses can choose:
      a. What to produce
      b. Which resources to buy
      c. Production techniques
      d. Marketing strategies
      e. Pricing strategies
      f. When to cease operations
Consumer Role:
  - Consumers can buy any legally sold product as long as they can afford it.
  - Consumer purchasing indicates demand, influencing what producers create.
    - If consumers do not buy a product, producers may:
      1. Change the product
      2. Replace it
      3. Go out of business
      - Example: If a new car model does not appeal, it will fail in sales.
      - Example: A poorly received film will not generate profits.
  - Consumers must be informed and make educated choices to ensure the production of quality goods at fair prices.

Private Property:
  - Private property includes anything valuable that people own (business or personal).
  - Forms of private property include:
    1. Land
    2. Buildings
    3. Furniture
    4. Jewelry
    5. Equipment
    6. Stocks
    7. Money
  - Individuals and businesses control private property usage.
  - Freedom includes:
    a. Deciding how and when to use or sell property
    b. Entering contracts
    c. Stopping unauthorized use
    d. Income generation from property
Government Control:
  1. The U.S. operates a mixed economy with limited government control.
  2. Government acts as a referee, regulating to protect citizens while allowing individual pursuit of goals.
  3. The role of government has expanded to address concerns like inflation, pollution, healthcare, and unemployment.

Competition:
  - Various production methods exist leading to competition among businesses.
  - For instance, books can vary in:
    a. Type of paper
    b. Typesetting styles
    c. Binding types
    d. Price points
    e. Formats (e-books, audiobooks)
  - Competitive advantage arises from efficiency in production.
    - A business must compete for consumer dollars through effective resource use, better services, innovations, etc.
Profit Motive:
  1. Profit is the monetary reward for business risk-taking.
  2. The profit motive forms the foundation of the private enterprise system.
  3. If profits do not materialize, businesses cease operations.
  4. Profit serves as motivation for entrepreneurship, allowing owners to keep their earned profits.

While highly productive, the private enterprise system has drawbacks:
  1. Production declines can lead to job losses and unemployment.
  2. Poverty persists; many can't afford necessities.
  3. Wealth and property distribution is unequal; access to income growth is often limited.

Economic Freedom:
  - Private enterprise encourages personal goal setting.
  - Individuals tend to work harder to achieve personal goals than imposed ones.
  - Economic freedom enhances productivity, benefiting the overall economic system.
  - While not guaranteeing success, it offers the opportunity for achievement.

Economic Freedoms:
  - Freedom to Choose:
    - Individuals can choose goals, work, salary, and locations.
    - They can become entrepreneurs and decide the direction of their business.
  - Freedom to Own Private Property:
    - Everyone owns valuable assets and can benefit from their profits.
  - Freedom to Compete:
    - Individuals and businesses can compete for opportunities and resources.

Limitations on Economic Freedom:
  1. Economic choices are limited by competition among buyers.
  2. Financial constraints necessitate prioritization of purchases.
  3. Laws protect public interests, requiring some businesses to adhere to regulations.
  4. Taxes limit direct access to income, funding government services for public benefit.

Wealth Distribution:
- Wealth and income are not equitably distributed; poverty remains an issue.
- Charitable contributions reach over $450 billion annually without legal obligation for companies.
Ethical Consideration:
- Should corporations prioritize charitable giving?
- How does such giving affect corporate reputation?

Reflect on everyday examples of private enterprise:
- New restaurants opening, property for sale/rent, fluctuating gas prices.
How do these relate to the principles of private enterprise?
Assess the benefits of the private enterprise system in local contexts.