Econ: U.S. Economy

US Econ Pillars

Americans describe their economy as a free enterprise system. In a free enterprise system, individuals own the factors of production and make decisions about how to use those factors within the framework of the law.

Economic freedom is the essence of the U.S. economic system. This is the ability of individuals to act in their own best interest in free markets. This means they can buy what they want and from whom they want. If they do not like what one firm is selling, they can take their business elsewhere. They are free to start businesses or to seek any job they choose. Firms are free to make what they want, hire whomever they choose, and set their own wages and prices.

Competition means anyone can enter the market at any time and many rival sellers usually vie for customers’ business. Competition provides an incentive for businesses to create new and better products and ways of serving customers. For consumers, this means more goods and services to choose from. Competition also encourages producers to use their resources efficiently in order to lower costs.

Equal opportunity means that Americans are born equal in terms of their rights, freedoms, and the opportunity to make the best of their talents and abilities.

Binding contract is an agreement between a buyer and a seller and are used in all kinds of economic transactions. In a free enterprise system, people are free to decide what contracts they want to enter into, but once agreed on, a contract is binding. That means both sides have to fulfill their ends of the deal.

Property rights are the rights of those who own land, buildings, or other goods to use or dispose of them as they choose. It also provides for the protection of intellectual property by empowering Congress to enact patent and copyright laws.

If any one force could be said to drive a free enterprise system, it is the profit motive. Profit is the money earned by a business after subtracting its costs of operation. The desire to make a profit is known as the profit motive. The profit motive is closely tied to the incentives-matter principle. Profits are our incentive to work or start businesses in the hope of making money for ourselves.

The final key characteristic of a free enterprise system is a relatively limited role for government in the economy. In the United   States, the government does not try to control firms. Nor does it often compete with firms. Government intervention in the economy is generally limited to seven areas.

  • Protecting property rights and contracts. The government enforces laws that protect property owners and patent and copyright holders.
  • Promoting the general welfare. The government funds projects and programs that benefit society as a whole.
  • Preserving competition. The government enacts laws that protect and preserve a competitive marketplace.
  • Protecting consumers, workers, and the environment. The government requires businesses to ensure that their products do not harm consumers. It also imposes regulations on firms to promote workplace safety and reduce pollution.
  • Stabilizing the economy. The government works to keep the economy growing steadily rather than alternating between periods of growth and recession



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