Free Enterprise System

So after about 2 hours searching for a good article about economy I decided just to do a reflection blog about what we did in Econ class this week.

We learned about the Free enterprise system and how money and resources are transferred through the economy. The free enterprise system is a system of economy that allows anyone to set up a business. There are 4 parts of a basic free enterprise economy. The Households (people), Businesses, Factor Market, and Product Market. Economists use a circular flow model to show how resources and money get traded between businesses and people.

Money flows from Businesses to Households through the Factor Market, and back to Businesses though the Product Market.

                   Products

                 /               \

               /                   \

Businesses                 Households <-----  Money goes counter-

              \                    /                                            clockwise

                \                 /

                    Factors


Businesses pay the Households for their resources needed to make products.
The Households pay the Businesses in return for the products they make with the resources.

                   Products

                 /               \

               /                   \

Businesses                 Households <-----  Resources go clockwise

              \                    /                                           

                \                 /

                    Factors

Another key part of free enterprise is that people can enter freely into contracts with other people. They will only accept the trade if they feel that they will make a profit off of the deal. This is called the profit motive. People and businesses will try their hardest to get the most profit from the resources or goods they have to sell.