Characteristics ofFree 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 purchase?

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 ofFree Enterprise Systems

• private property – any good that is owned by an individual or a business

• public property-owned by the government

5 Characteristics ofFree Enterprise Systems

•Choice•buyers•sellers•workers•investors ? ? ?

5 Characteristics ofFree Enterprise Systems

• Voluntary exchange– people can exchange what they value less for what they people can exchange what they value less for what they

value morevalue more– people are free to contract and negotiatepeople are free to contract and negotiate

5 Characteristics ofFree 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 ofFree Enterprise Systems

• economic incentive– money acts as an incentive

» 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”

» 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 people.

“the invisible hand”influences the U.S. foundersinfluences the U.S. founders

Adam SmithAdam 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 occupations.

• 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 Free-Enterprise System

• The right to voluntary exchange implies the responsibility to provide honest information.

• The right to private property implies the responsibility to use it in a legal manner.

• The right to compete implies the responsibility of sportsmanship.