Question

Which statement about the free enterprise system is true?

Answer 1

The correct answer is It allows the citizen to own and operate a private business for profit.

A free enterprise system is one that involves little government regulation of business. This economic system allows people to own their own businesses. Since individuals have the ability to own their own businesses, they can control who they hire, what products they make, how much they will charge for their product, how many products they will make, etc.

Answer 2

The free enterprise system allows the citizen to own and operate a private business for profit.

The basic principles of a free enterprise system were laid out by Scottish philosopher Adam Smith in an influential book published in 1776:  An Inquiry into the Nature and Causes of the Wealth of Nations.  The Nobel-prize winning 20th century economist Milton Friedman said of Adam Smith, "The key insight of Adam Smith's Wealth of Nations is misleadingly simple: If an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it."  Smith argued for such voluntary exchanges within a free market system.  He labeled the government-manipulated economic system that was prevailing in his day as "mercantilism," a system in which governments specifically authorized some merchants as the official agents of commerce (rather than endorsing free enterprise).  The mercantilist system also viewed wealth as though there were a fixed amount of it available in the world, represented by precious metals such as gold and silver, and that nations were in competition over who got more of that fixed amount of world wealth.  Smith saw that wealth was something that could be created and increased through voluntary exchange and free enterprise.  Smith's ideas formed the basis for what we have come to know as capitalism.