Characteristics of Free Enterprise
How does Free Enterprise answer the 3 Economic Questions?
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What goods will be produced?
sellers decide: what are consumers willing and able to purchase?
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How will these goods be produced?
producers decide
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For whom will the goods be produced?
for those willing and able to buy
5 Characteristics of Free Enterprise
Systems
• private property – any good that is owned by an
individual or a business
• public property-owned by the government
• Choice
• buyers
• sellers
• workers
• investors
• Voluntary exchange
– people can exchange what they value less for what they value more
– people are free to contract and negotiate
• Competition
– producers compete for consumers by making better products and/or
reducing price.
– businesses compete for better workers with higher wages
– workers compete for jobs by accepting lower wages or by offering better
skills
• economic incentive
– money acts as an incentive, opportunity acts as an incentive
» people are inspired to work and create businesses in the hopes of making money.
“the invisible hand”- free market
An Inquiry into the Nature and Causes of the Wealth of Nations - 1776 Adam Smith *
• Free markets will guide the most efficient and just distribution of goods and services,
providing the most benefit to the most people.
*influences the U.S. founders
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Ethics and Free-enterprise
Rights Imply Responsibilities in a Free-Enterprise System
The right to voluntary exchange implies the responsibility to provide honest information.
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The right to private property implies the responsibility to use it in a legal manner.
The right to compete implies the responsibility of sportsmanship.