FREEE ENTERPRISE SYSTEM:
In United States, we have the freedom to make decisions about where we work and how we spend our money. We also have the freedom to elect the people who represent our government. Our nation’s founders believed that individuals should have freedom of choice and created the philosophy of thee free enterprise system. Free enterprise system encourages individual to start and operate their own business without government involment.The free enterprise system we have today is modified because the government does intervene on a limited basis. There are however restrictions on how and where those businesses may operate.
COMPETITION:
Businesses that operate in a free enterprise system try to attract new customers and keep old ones. Other businesses try to take those same customers away. This struggle between companies for customers is called Competition. It is an essential part of a free enterprise system. It is one of the means by which the free enterprise system functions to benefit consumers. Competition forces business to produce better quality goods and services at reasonable prices. Businesses constantly look for ways to develop new products and improve old ones to attract new customers. Competition results in a wider selection of products from which to choose. The results of these efforts increase the nations output of goods and services, as well as it standard of living.
MONOPOLIES:
When there is no competition and one firm controls the market for a given product, a monopoly exists. A monopoly is exclusive control over a product or the means of producing it. Monopolies are not permitted under a free enterprise system because they prevent competition. A company can charge whatever it wants without competition. It can also control the quality of a product and who gets it. Without competition there is nothing stopping a company from acting without regard to customer wants and needs.
RISK:
Along with the benefits that come from private ownership of property and competition, businesses also face risk. Risk is the potential for loss or failure in relation to the potential for improved earnings. As the potential for earning gets greater so does the risk. Putting money in the bank with guaranteed interest rates is less risky than investing in stock market. One out of every three businesses in the united states fails after one year of operation. This risk continues even if a business survives the first few years. When an industry develops and profits are great, more people enter that industry. This increases competition and risk of failure for individual firms.
ECONOMIC COST OF UNPROFITABLE FIRMS:
Profitable businesses hire more people and pay them well. Employees generally not only have higher morale. Investors earn money from their investments, which they spend or reinvest. Vendors and suppliers make more money, too. As employment and profits climb, the government makes more money from taxation of individuals and businesses. Companies and individuals are also more likely to donate to charities when they are doing well. As people earn higher incomes they have more money to spend freely. There is an increase in a need not only for expensive products such as cars and homes, but also for services such as vacations.
If each person is free to develop and apply his or her talents to the greatest extent possible, then both the individual and the economy benefit. American high standard of living is a shining example of showing that all who had the opportunity to succeed on the basis of their own effort, skill, and ingenuity.
