Chapter 2, Problem 16AA

To determine

To analyze six goals 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.

(1) To sustain economic freedom: Free market economy means that every person may participate in it. The decision to manufacture or consume a given product is completely voluntary. This means businesses or individuals can manufacture or buy as much or as little of a commodity as they wish.

(2) Allow optimum use of scarce resources: In this market there exists huge competition among firms due to which the resources are used very wisely and in most efficient manner.

(3) To share benefit among everyone: In this market everyone is responsible for its profit and losses. So, the action of individual firm and person is directly linked to the benefit they will earn from their economic activities.

(4) Maintain stable prices and unemployment: In this market everyone works for its profit motive due to which competition is maintained in the market which leads to price stability and hence, unemployment.

(5) Flourishing financial markets: Brokerages and banks operate to provide the means to trade products and services for individuals and firms, and to provide investment services. Then, the financial institutions make a profit by charging transaction fees or interest rate. So, the financial market become flourished and advanced in the market economy.

(6) Increase the amount of goods and services which can be produced by each worker in the economy: In this economy, the profit making firms divides workers according to their skills due to which the time taken to do a particular work decreases and hence, the production of commodities and services per worker rises.