Capitalism and Free EnterpriseThe United States has a free enterprise system, or a capitalist, system.

Features of Capitalism

• The U.S. economy is built on capitalism and free enterprise.

• Capitalism is an economic system in which private citizens own and use the factors of production to seek a profit.

• Free enterprise is an economy in which competition is allowed to flourish with a minimum of government interference.

Features of Capitalism

• Markets are places where different sectors of the economy interact, and their exchanges determine the prices of goods and services.

• Businesses try to produce the products people want most. Because of this, we use the term consumer sovereignty to describe the consumer as ruler of the market, the one who determines what products will be produced.

Features of Capitalism

• Choice is a key element for free enterprise. We are free to choose the occupation we want and where we want to work. We can choose the products we will buy.

• Businesses can choose the products they will produce and offer for sale.

Features of Capitalism

• Along with the freedom to choose comes the responsibility to accept the consequences of the decisions. If an entrepreneur starts a business that fails, the government usually won’t help out.

• Under capitalism, we also have private property rights. We are free to own and use, or dispose of, our own property as we choose as long as we do not interfere with the rights of others.

• These rights give us the incentive to work, save, and invest.

Features of Capitalism

• Capitalism thrives on competition—the struggle between buyers and sellers to get the best products at the lowest prices.

• Competition between sellers tends to reduce production costs and increase product quality.

Features of Capitalism

• Competition rewards the most efficient producers and forces the least efficient out of business.

• Competition results in efficient production, higher-quality products, and more satisfied customers.

Features of Capitalism

• Profit is the money left over after all costs of production have been paid.

• The profit motive is the driving force behind free enterprise and capitalism.

• People are willing to invest in a business venture and risk losing their investment for the chance to earn a profit.

Features of Capitalism

• Voluntary exchange is the act of buyers and sellers freely and willingly engaging in market transactions.

• As long as exchanges are voluntary, both buyer and seller must feel that they benefit from their exchange, or they will not do it.