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What kind of economy uses a free-enterprise system? a. closed economy b. command economy c. market economy d. traditional economy

Jennifer Patterson

in Social studies

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Brandon Scott on December 4, 2018

The third answer is correct (C). A market economy is characterized by free entry and exit of competing companies and the free mobility of factors of production. This model adds a large number of companies and is governed by free competition and the Law of Supply and Demand. The Law of Supply and Demand determines the price of the products. If the demand is high, the price and the increase of the production. If the demand decreases, the price decreases and the quantity produced as well, due to that the producers lose the incentive to produce. In this way, the companies are not able to determine the prices, to be decisive for their stay in the efficiency in the mode of production. Companies with high production costs, succumb to the competition and are eliminated from the market.


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