What Is Free Enterprise Economy?

The United States works on a free enterprise economy or system, which allows any individual or group of people to start and operate a business with minimal government regulation or interference, according to the Federal Reserve Bank of Dallas. Free enterprise economies allow people to be creative and productive on their own volition, unlike other market economies, such as a socialist or communist economies.


The components of a free enterprise system include households, businesses, markets and the government. Businesses procure and organize resources and offer them to consumers of households, who own most businesses either as entrepreneurs or shareholders.


Free enterprise systems are run on the basis of consumer sovereignty, which means that consumers are the ones that drive demand and the products and services that are sold.


Free enterprise economies let competition develop naturally based on consumer demand. Businesses set prices, market their wares or services, vie for the available dollars spent in their particular industries and sometimes fail as competitors gain market share and entrench themselves in the marketplace.


A free enterprise economy is the most efficient and cost-effective way of doing business. There is less waste in the usage of natural resources because everything is driven by consumer demand.


Though free enterprise economies run on their own with little government intervention, the government will intervene if antitrust laws are violated or when natural resources are limited.