Free enterprise, also known as capitalism, is a type of economic and social system based on privately-owned capital, means of production, labor, and market trading. Profits are distributed to owners or used to invest in technology and industry. There are five basic tenets of the system that are generally accepted as key elements to the prosperity of the system.
For a capitalistic society to succeed, there must be individuals to engage as consumers, laborers, and investors. Consumers influence production patterns through purchasing decisions. Laborers decide what jobs to create and what markets to look for work. Investors decide how much money to save and how much to invest helping businesses grow.
Business firms decide what and where production should occur and also influence purchasing. Businesses try to influence consumer decisions using marketing and advertising to maximize profits (also known as a profit motive). This is the driving force of the capitalist society.
The free market is the central exchange of goods and services. In a capitalist society, the goods and services are controlled mainly through supply and demand, as well as competition. Laws are in place to encourage competition in the free market and avoid monopolies.
Income earned in a capitalist society mainly depends on skills, along with supply and demand. People with rare skills are worth much more in the free market and can demand higher income.
In a capitalist economy, the market is not controlled by the government (a system known as laissez faire), but is still regulated by the government. The government sets laws to protect consumers and ensure that competition is maintained or promoted.
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