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Free Enterprise

FREE ENTERPRISE


Free enterprise refers to an economy that allows private businesses the freedom to organize and operate competitively for a profit without government interference, regulation, or subsidy. The main characteristics of a free enterprise economy are market competition, generation of profit, and the law of supply and demand. Competition forces businesses to manufacture goods with available raw materials and means of production at the lowest cost possible. In order to generate a profit, businesses must then be able to sell their products at a price higher than the cost of production. Pricing of goods in a free enterprise economy is based on both the supply of goods available in the marketplace and the demand for those goods from consumers. If the supply is greater than the demand, the resulting surplus causes prices to decrease. If the demand is greater than the supply, the resulting shortage causes prices to increase. Eventually, an equilibrium price is reached when supply meets demand.

See also: Capitalism, Supply and Demand

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free enterprise

free en·ter·prise • n. an economic system in which private business operates in competition and largely free of state control.

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