Which economic system is guided by the choices made by the private sector?

• A. Command
• B. Free enterprise
• C. Traditional
• D. Mixed

Answer: (B)

In a free enterprise system, private individuals and businesses decide what to produce, how to produce, and for whom to produce, driven by profit and the demand of buyers. Prices act as signals that channel resources: when more people want a good, its price and production tend to rise; when demand wanes, production shifts elsewhere. Consumers have real choices, and competition encourages efficiency and innovation. The government’s role is limited to enforcing laws and maintaining fair play, not steering what gets produced. This focus on private-sector decisions distinguishes it from a command economy, where the government directs production; from a traditional economy, where customs guide choices; and from a mixed economy, where both private decisions and government actions shape outcomes.