Chapter 2, Problem 13AA

To determine

To analyze six characteristics of free enterprise.

Explanation of Solution

Free enterprise means an economy where goods, services and prices are decided by the market rather than by the government. In this, the firms and services are exempt from government control.

Following are six characteristics of free enterprise:

1. Economic freedom: In this economy, there is a freedom to buy anything a consumer want, freedom to choose job, employer and place of employment. Consumers are the ones who determine which goods are a success and which ones fail.
2. Private property: Free markets operate because individuals or private sector firms own a large portion of capital and not a central government entity. Under this, the owners exert absolute control over the means of proction, distribution, and commodity exchange. They regulate the supply of labor, as well.
3. Voluntary exchange: In this market there is a voluntarily and actively involvement of buyers and sellers in market transactions.
4. Profit motive: In a business venture, people are free to gamble some portion of their capital. Everyone is responsible for their own profit and losses. The firms and businesses runs for the profit motive.
5. Competition: There is a competition between sellers to draw buyers at the lowest prices with the best goods because there are many firs and everyone is engaged in attracting consumer towards them.
6. Freedom of doing inventions: In a free market economy, business owners enjoy the ability to create new ideas based on the needs of the consumers. They can develop new products at any time they want, and provide new services.