Merits of a free enterprise economy

• There is consumer sovereignty. In a market economy, prices indicate consumer wishes, and therefore as long as consumers are willing to pay a high price, the producers will automatically direct the resources into the production of those goods.
• It encourages competition hence efficiency. Competition that prevails in a free market economy forces firms to be efficient and all those that fail to be efficient are automatically pushed out of the business since they cannot compete.
• Quality output is produced. Competition amongst firms encourages production of high quality products because besides low prices, consumers are attracted by quality output.
• Inventions and innovations are encouraged in a free market economy due to the self interest that prevails amongst the people. As people try to raise their earnings, they come up with new ideas or improve on old ones.
• A variety of goods are provided to consumers, freedom of enterprise enables consumers to consume a variety of goods produced by the various firms thereby widening the range of choices.
• Consumers buy goods at low prices because of competition. The profit motive tends to force producers to produce at low cost with the intention of maximizing profits but this also enables them to charge lower prices.
• The price mechanism in the free market economy automatically answers the questions of what to produce, whom to produce, how to produce, where to produce and how much to produce. These questions are answered through the motivation of self interest.
• Private ownership of property increases production and productivity which leads to increase in the national income of a country hence economic growth is attained.