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Characteristics of Free Enterprise

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Characteristics of
Free Enterprise
How does Free Enterprise answer
the 3 Economic Questions?
1. What goods will be produced?
sellers decide: what are consumers willing and able to
1. How will these goods be produced?
producers decide
1. 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
• public property-owned by the government
5 Characteristics of
Free Enterprise Systems
• Choice
• buyers
• sellers
• workers
• investors
5 Characteristics of
Free Enterprise Systems
• Voluntary exchange
– people can exchange what they value less for what they
value more
– people are free to contract and negotiate
5 Characteristics of
Free Enterprise Systems
• 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
5 Characteristics of
Free Enterprise Systems
• economic incentive
– money acts as an incentive
В» people are inspired to work and create businesses in the hopes of making money.
“It is not from the benevolence of the
butcher, the brewer, or the baker, that we
expect our dinner, but from their regard for
their own self-interest”
В» Adam Smith
“the invisible hand”- free market
An Inquiry into the Nature and Causes of the Wealth of Nations - 1776
• Free markets will
guide the most
efficient and just
distribution of goods
and services,
providing the most
benefit to the most
“the invisible hand”
influences the U.S. founders
Adam Smith
So far….
• 5 characteristics of Free Enterprise
– Private property
– Choice
– Voluntary Exchange
– Competition
– Economic Incentive
• Adam Smith “Father of Modern Economics”
– Wealth of Nations
– “the invisible hand” of the free market
Ethics and Free-enterprise
• 1.Allows for individuals to choose their own
• 2.Produces goods/services preferred by both the
majority and the minority.
• 3.Rewards or punishes producers based on how well
or poorly they respond to the buying public.
• 4.Supports the right of the individual to be free.
• 5.Provides an opportunity for individuals to strengthen
and develop their abilities.
Rights Imply Responsibilities in a FreeEnterprise System
• The right to voluntary exchange implies
the responsibility to provide honest
• The right to private property implies the
responsibility to use it in a legal manner.
• The right to compete implies the
responsibility of sportsmanship.
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