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Chapter 3: Problem 4

In a free enterprise economy, how would you answer this question: For whom are goods produced?

Short Answer

Expert verified
In a free enterprise economy, goods are produced for those who have the purchasing power and are willing to buy them. The market forces of supply and demand determine this.

Step by step solution

01

Understand the mechanism of a free market economy

A free enterprise or free market economy is one where decisions about what to produce and in what quantities are decided by the market's supply and demand mechanisms. Consumers and producers act in their own self-interests to make these decisions.
02

Identify who benefits

Goods are produced for those consumers who are willing and able to buy them. Producers make goods that they believe consumers will buy, in order to make a profit. The price mechanism plays a crucial role in determining for whom goods are produced in such a market.
03

Explain the role of purchasing power

In a free market, purchasing power is partially distributed through the income individuals earn. Therefore, in principle, the higher the income, the higher the purchasing power, and the greater the amount of goods that can be bought. So, goods are typically produced for those with the ability to buy.

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