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What is the Free Enterprise System? - Definition & Examples

What is the Free Enterprise System? - Definition & Examples
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Lesson Transcript
Instructor: Aaron Hill

Aaron has worked in the financial industry for 14 years and has Accounting & Economics degree and masters in Business Administration. He is an accredited wealth manager.

Find out what a free enterprise system is and how you benefit as a consumer and business owner in this type of environment. Learn about some common examples of free enterprises.

What is a Free Enterprise System?

Do you realize that you are experiencing a free enterprise system every time you spend money buying goods and services in the United States? The price that you pay, the types of goods that you can purchase, where you shop, and the customer service experience that you get are all largely driven by business owners who make free decisions about how to operate their business.

A free enterprise system is an economic system where a government places very few restrictions on the types of business activities or ownership in which citizens participate. This type of system is often referred to by others as a free market, or capitalism. In a free enterprise system, you are allowed to spend your money in the way you want. You often have several different companies competing for your business, which often leads to lower prices and better-quality products. You are also free to pursue any type of job or work that you enjoy. How would you feel if someone told you exactly what you had to do for a living?

There are countries around the world that do not have a free enterprise system. Socialist governments, those that directly manage their nation's social and economic affairs, often direct what kind of work people have to do and also limit the opportunity for many people to own businesses. As a result, these countries also limit what you can purchase. Can you imagine only having one phone carrier to purchase plans or phones from? How about having only one cable television provider that told you what channels you could watch? Part of the reason those in the U.S. do not face this situation is because of the free enterprise system.

It is important to note that free enterprise systems can vary and differ in how 'free' they actually are. The United States and Singapore are two examples of countries that reflect the most free enterprise systems. Many European countries are also considered free enterprise markets, but often have more government regulations and involvement in business transactions when considered necessary.

Characteristics of Free Enterprise

In general, a free enterprise system usually has the following traits or characteristics:

  • Consumer preferences and spending, not the government, drive what types of products and services companies offer.
  • The government allows you to choose any type of business or field that you are interested in owning or seeking employment.
  • The market allows you to buy land, buildings, and property with very few restrictions.
  • As a business owner, you have the right to set your own prices and determine your own profit levels.
  • As a business owner, you have the ability to choose suppliers and other people you do business with.

Free Enterprise in Action

Examples of free enterprise in action include:

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