Final answer:
The free enterprise system encourages competition by providing economic freedom, a variety of goods, responsive prices, investment opportunities, and by the government's role in regulation and promotion of fair competition.
Step-by-step explanation:
The free enterprise system is a hallmark of the American economy, characterized by private ownership and geared towards profit. This economic structure inherently encourages competition by fostering an environment where individuals and businesses are free to pursue their financial interests.
In order to understand how competition is encouraged, we can recognize that in a free enterprise system:
- There is economic freedom for consumers to choose from a variety of goods, driving producers to innovate and improve their products and services to attract customers.
- Prices are responsive to supply and demand, instigating companies to become more efficient and cost-effective to stay competitive.
- There are investment opportunities that incentivize the creation of wealth and new business ventures which contribute to the competitive landscape.
- The government acts as both a regulator to ensure fair competition and as a promoter of economic growth.
Moreover, the government has the responsibility to create regulations that establish a level playing field in business establishments, preventing monopolistic practices and promoting fair competition.