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Free Enterprise System

Q. What is the Free Enterprise System?

A. The Free enterprise system is an economic system characterized by private ownership of property and productive resources, the profit motive to stimulate production, competition to ensure efficiency, and the forces of supply and demand to direct the production and distribution of goods and services.

Ref: TeachMeFinance definition

The invisible hand of the marketplace is called a self-organizing system.

Why do markets need government? Governments are needed to provide certain public goods, such as highways, that markets cannot provide efficiently.

Private markets work well when there are many suppliers and consumers.

They begin to misfire when economic logic calls for a single supplier, for example to operate the police force, fire department, army, court system, highway network, or electricity distribution system.

In such cases, society basically needs just one supplier or at most a very small number, rather than many.

Free markets also fail when producers cause adverse spillovers to the rest of society, such as pollution.

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