Private enterprise system Research Paper Example | Topics and Well Written Essays - 1500 words

Private enterprise system - Research Paper Example The competitive nature of the economy, due to the capitalist system, makes it easier for consumers and firms to buy and sell goods and services freely. In a private enterprise system in its purest form all factors of production are privately owned and there is no intention from the government to set market prices or intervene in the economy (Gitman & McDaniel 2007). Due to the little intervention by the government market forces dominate the economy and the three basic questions in economics: 1) what to produce? 2) how to produce? and 3) for whom to produce? are determined by the market mechanisms of demand and supply. 1. What goods and services to produce: it is the people who decide the mix of goods and services that should be produced and sold in the economy. The people demand those goods and services that they either need or want. Their needs and wants are based on the amount of income they have or wealth they possess to buy the goods and services. Firms then produce and supply th e goods and services that are demanded by the customers in order to maximize their profits. 2. How to produce the goods and services: as there are limited resources available to an economy, producers aim to use minimum resources to maximize output and profits. As a result firms use the most effective, efficient and least costly factors of productions to produce the goods and services desired by the consumers in the economy. 3. For whom to produce: as there are only a limited number of resources available hence only a limited amount of goods and services can be produced. People’s income is the major determinant regarding who gets the produced goods and services. Although firms produce the goods and services demanded by the economy, people with more income and more money at their disposal will dominate and be able to buy whatever they desire. Hence as can be seen the basic economic questions are answered in a private enterprise system by the decisions of producers, consumers an d the market forces of demand and supply. There are four economic rights in a private enterprise system. The fundamental right on which the whole capitalist system stands is the right to own private property. As the private enterprise system states that resources are privately owned, people have the right to buy, sell, own, use and transfer property. Some forms of property include land, machinery, building, equipment and private possessions. People won’t be able to sell goods and services if they are not allowed the right to own as they will not be able to transfer this right to others through an agreement. The second right that exists in a private enterprise system is that the business owners have the right to keep profits from their business activities after taxes have been paid. Profit is the reward for the business owners as he is the one who takes the risk of investing his privately owned resources in the business hence any income generated by the owner in excess of his costs becomes his profit which he is entitled to keep. Another important right is the right of freedom of choice. People in the private enterprise economy are free to choose their own job, find alternate jobs if they are not satisfied with the current, become part of labor unions, negotiate their wage with the employer, choose from a diverse range of goods and service or choose to set up their own business. As can be highlighted from these examples