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FIXED INPUT: An input in the production of goods and services that does not change in the short run. A fixed input should be compared with a variable input, an input that DOES change in the short run. Fixed and variable inputs are most important for the analysis of short-run production by a firm. The best example of a fixed input is the factory, building, equipment, or other capital used in production. The comparable example of a variable input would then be the labor or workers who work in the factory or operate the equipment. In the short run (such as a day or so) a firm can vary the quantity of labor, but the quantity of capital is fixed.
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                           FREE ENTERPRISE: In theory, an economic system that relies extensively, if not exclusively, on unregulated markets to exchange resources, goods and services, and to answer the three questions of allocation. In practice, this term is often used synonymously with capitalism. In principle, free enterprise is an economy in which businesses and consumers of the private sector are "free" to engage their resources in any desired production, consumption, or exchange activity without government restriction, regulation, or control. The guiding philosophy is that individuals, not governments, know how best to allocate resources.Laissez FaireThe free enterprise view can be traced at least to the laissez faire notion championed by Adam Smith in The Wealth of Nations. Smith argued that individual consumers and producers pursuing their self interests through voluntary market exchanges achieve an efficient allocation of resources and do what is best for the entire economy.Efficiency in a market is achieved with the equality of the maximum demand price that buyers are willing and able to pay (the value of goods produced) and the minimum supply price that sellers are willing and able to accept (the value of goods not produced). In a competitive, unregulated market, absent market failures, efficiency is achieved at equilibrium. If one market achieves efficiency in this manner, then an entire economy consisting of such markets also achieves efficiency. Proponents of free enterprise contend that the primary reason an economic system based on voluntary market exchanges does not, or would not, achieve efficiency is government intervention. The principle forms of efficiency disrupting government intervention are price floors, price ceilings, and taxes. Market FailuresContrary to what some folks think, free enterprise has never actually existed in any country at any time. Governments have always played central, and valuable roles, as society attempts to reduce the problems of scarcity. The reason for government intervention is that "free" markets can and do fail to achieve efficiency. The principle market failures include:- Public goods.
- Market control.
- Externalities.
- Imperfect information.
These market failures prevent the equality between the value of goods produced and the value of goods not produced that achieves efficiency. The persistent existence of market failures means that free enterprise does not achieve economic utopia, as some contend. These failures also explain the persistent government intervention in the economy.A Bit of PoliticsThis notion of free enterprise is often championed by business firms and capital owners who have the most to gain from market failures, especially market control. In theory, a firm with market control receives a higher price, and often greater economic profit, than it would in a more competitive market. Proper government intervention could lower the price and reduce economic profit.To avoid government intervention, a firm might then be inclined to promote, erroneously, the benefits achieved with free enterprise, even though such benefits do not exist. However, if the firm has sufficient political influence, then the unfounded free enterprise argument might avoid government action and maintain economic profit.
Recommended Citation:FREE ENTERPRISE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2026. [Accessed: May 17, 2026].
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Today, you are likely to spend a great deal of time at an auction seeking to buy either a large stuffed brown and white teddy bear or a replacement washer for your kitchen faucet. Be on the lookout for fairy dust that tastes like salt.
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