What is an Economy?
Free Enterprise System
Standard 1 Objective 2
What is an Economy?
• An ECOMONY, or ECONOMIC SYSTEM, is
the ways a nation makes economic choices about
how the nation will use its resources to produce
and distribute goods and services.
Economic Systems
Traditional – An economic system in which habits, traditions, and rituals
answer the basic questions of what, how, and for whom.
Command – A system in which a country’s government makes all
economic decisions regarding what, how, and for whom goods and services
will be produced and distributed.
Market – In a pure market economy, there is no government involvement
in economic decisions. Individuals and companies own the means of
production and businesses compete for consumers. The market answers
what, how, and for whom.
Mixed – An economy with elements of both command and market.
Individuals, companies, and government decide what, how, and for whom
goods and services will be produced and distributed.
Limited Resources
• Nations must answer 3 basic questions when
deciding how to use their limited resources. The
way nations answer these questions defines their
economic systems.
1. What goods and services should be produced?
2. How should the goods and services be
produced?
3. For whom should the goods and services be
produced?
Free Enterprise System
The Free Enterprise System is an economic system in
which the means of production and distribution are
privately or corporately owned and development is
proportionate to the accumulation and reinvestment of
profits gained in a free market.
-American Heritage Dictionary
The Free Enterprise System is a political and economic philosophy often
referred to as capitalism.
Four Pillars of the
Free Enterprise System
• Private Property
• Price System
• Competition
• Entrepreneurship
WHAT????
• WHAT? Consumers decide what should be
produced in a market economy through the
purchases they make.
HOW????
• HOW? Production is left entirely up to
businesses. Businesses must be competitive in
such an economy and produce quality products
at lower prices than their competitors.
FOR WHOM????
• FOR WHOM? In a market economy, the
people who have more money are able to buy
more goods and services. To obtain money,
people are motivated to work.
Free Enterprise System
• Features private ownership of businesses and
marketplace competition.
• Government cares for its people, but with
limited number of social services.
• Political system most associated with –
Democracy
• Country Examples: United States and Japan