Question

Explain how incentives and the limited role of government function in a free enterprise system.

Answer 1

Answer:

The government has two major roles;

a. The role of a rule maker.

b. The role of an umpire.

Explanation:

a.

A free enterprise system is an economic model where the prices and quantities produced are determined by the market rather than the government. The government usually has limited or no control on the market forces. In other words, a free enterprise system is an ideology where the market is majorly controlled by private businesses. The foundation for free markets are; voluntary trade, private ownership of property and competition in bidding. However, a government controlled economy usually has the following properties, namely; all property is publicly owned, trade is coerced and there is limited competitive bidding. Even though the government has a limited role in a free enterprise system it still has a role in allowing individuals to operate freely in the market. The roles of the government are; rule maker and umpire.

b.

In a free enterprise system, individuals are allowed to do their transactions without any restrictions. Even though individuals are free to operate, there needs to be rules to make sure that the transactions are in deed free. This is where the government comes in to enforce the laws that govern the smooth running of a free enterprise system. The government's role as an umpire means that the government has the authority to solve disputes resulting from different interruptions of the law.