Question

Your text identified basic individual and business rights that must be present in order for a free enterprise to exist. What obstacles to these rights might exist that would prevent a true free enterprise system?

Answer 1

A free enterprise is a kind of economic system in which government intervention is severely limited and people have the right to create business & own factors of production. It is based on principles of demand & supply. Existence of competition & private ownership of property are two important features of a free enterprise.

Basic individual and business rights that must be present in order for a free enterprise to exist are mentioned below:

a) Private property rights: In a free enterprise system, people have the right to have full control over their own property. They can buy or exchange their property in a way they wish to. Government does not exercise control over property, the control over property is given to individuals.

b) All Market participants have equal rights: Equal rights are given to all market participants in a free enterprise system which results in pure competition. Competition among the market participants leads to innovation & high creativity as a result of which there is development of superior products in the market. Also, due to competition price of products is reasonable.

c) Profit motive: In a free enterprise system, sellers have the right to maximize their profits. They aim at maximizing profits in order to increase their wealth. Sellers aims at minimizing their costs in order to maximize their earnings.

d) Owner Control: In a free enterprise system, the owner of the business manages it & sets business policies & takes various decisions related to the business. The factors of production are owned by the owner of the business.

e) Right to choose: In a free enterprise system, individuals have the right to choose between various available options on the basis of their own choice. Buyers are free to buy the goods & services that maximizes their satisfaction. There is voluntary exchange of goods & services between the buyers & sellers.  

f) Equal legal rights: In a free enterprise system, all the market participants have same legal rights.

Obstacles that might exist that would prevent a true free enterprise system are mentioned below:

a) Legal obstacles: It is the responsibility of the government to remove the legal obstacles that prevent the starting & working of a free enterprise system.

b) Tax structure: Government should not impose higher taxes on businesses instead it should promote small businesses by providing favorable tax incentives.

c) Lack of entrepreneurial awareness: If individuals are not well aware about the advantages of owning a business on their own, this will act as an obstacle for establishing a free enterprise system. So, support structures are required that educate & train people & also help them financially to start a business on their own. Also, adequate consultation should be provided to new businessmen, so that they can operate their business smoothly.

d) Removal of barriers to trade: Various kinds of barriers related to trade & investment must be removed in order to ensure the existence & development of free enterprise system.

e) Government regulations: Interference of government in individual businesses by imposing various rules & regulations can prove to be an obstacle for establishing a free enterprise system.