Social Studies Help Center
Social Studies help for American History, Economics and AP Government. There are class notes, numerous Supreme Court case summaries and information on how to write a research paper inside.

HOW DOES THE U.S. FREE ENTERPRISE SYSTEM OPERATE?

The U.S. economic system of free enterprise operates according to five main principles: the freedom to choose our businesses, the right to private property, the profit motive, competition, and consumer sovereignty.


Freedom to Choose Our Businesses

In this country, the decision whether or not you should go into computer services or any other kind of enterprise (business) is basically yours alone to make. You will decide what fees to charge and what hours to work. Certain laws prohibit you from cheating or harming your customers or other people. But, in general, you will be left alone to run your business as you see fit.


Right to Private Property

Private property is a piece of land, a home, or a car owned by an individual, a family, or a group. It differs from a public building, or public property, such as the city hall, a park, or a highway, all of which provide a government service for all citizens. In the U.S. economic system, people's right to buy and sell private property is guaranteed by law. People must use the property in safe and reasonable ways, of course. In setting up computer systems for your customers, for example, you do not have the right to interfere with the electrical, telephone, or computer systems of other people.


Profit Motive

The main reason why you or any enterprising person organizes a business is to make money. You do this by earning more money than you spend. The amount of money left over after subtracting your business expenses from your business income is known as your profit. In the free enterprise system, business firms try hard to keep costs down and increase their income from sales. The better they succeed at this, the higher are their profits. Economists describe the efforts by business firms to earn the greatest profits as the profit motive.


Competition

Just as you are free to start a computer business, so is everyone else. The rivalry between sellers in the same field for consumers' dollars is called competition. If your business is profitable, it is likely that others will enter the same business hoping to be as successful as you are. They will be competing with you for the same customers. To win a share of the computer business, other sellers may try to offer more and better services, or services at lower prices. Because of the pressure of competition, business firms must constantly try to provide the best services and create the best products at the lowest possible prices.

 

Consumer Sovereignty

In the end, it is the customers, or consumers, who determine whether any business succeeds or fails. In the U.S. free enterprise economy, consumers are said to have sovereignty-the power or freedom to have final say. Consumers are free to spend their money for Product X or for Product Y. If they prefer Y over X, then the company making X may lose money, go out of business, or decide to manufacture something else (perhaps Product Z). Thus, how consumers choose to spend their dollars causes business firms of all kinds to produce certain goods and services and not others.


Back To Class Page

 
Sites for Teachers

American History Topics   |   American History Lessons   |   Economics, Government & More



Site maintained by "Mr. Bill" - Bill Jackson
Education Software - Educational Games - Music Quiz - Arts and Crafts for Kids
© 2001-