Free Enterprise System

Andrew Njo, Cash Moser, Collin Briggs, Asia Williamson

Basic Definition

The Free Enterprise system is an economic system where private business are allowed to compete with each other. In other words, both the consumer and producer can make their own decisions; Producers can make anything and consumers can buy anything.  Here is a list of a few of the many countries that have this type of economic system established:

                  -United States

                  -Canada

                 -Japan

                 -Germany

Profits

-Free enterprise is an economic system that provides individuals the opportunity to make their own economic decisions, free of government constraints, and as private profit-potential.

-Profits (or losses) in a cooperative differ from investor-oriented corporations in how they are distributed and to whom they go.

-Money left over at the close of the business year, after meeting all expenses and requirements there may be for reserves, is returned to members in cash or other forms, according to the amount of business done with the coop- erative that year.  

-Each member usually has only one vote, no matter how many shares of stock he/she may own. (Some States do allow voting in proportion to patronage/the amount of business done.)

Relationship between Producers and Consumers

-The producers and consumers work together in the Free Enterprise System.

-Producers only make what consumers demand.

-When prices go down the consumers buy more.

-When prices go up consumers buy less.

-Consumers sometimes want customization and producers can customize based on consumer specifications

-Both are concerned about security of products.                                               

Supply & Demand Relationship

-If demand increases and supply remains unchanged, a shortage occurs, leading to a higher price.

-If demand decreases supply remains unchanged, a surplus occurs, leading to a lower price.

-If demand remains unchanged and supply increases, a surplus occurs, leading to a lower price.

-If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher price.

Adam Smiths Invisible Hand

-The invisible hand ensures that no one underpays his workers too severely or overcharges for his goods, because workers could always find other jobs and consumers could buy their goods elsewhere. Therefore, the market, and thus society, is in effect self-regulating

Laissez-faire

-In general, a laissez-faire policy implies that businesses and individuals are free to act with minimal interference from the government.

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