Laissez Faire Capitalism Flashcards, test questions and answers

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What is Laissez Faire Capitalism?

Laissez Faire capitalism is an economic system in which individuals have the freedom to make their own decisions regarding production and consumption, without interference from government or other outside forces. This type of capitalism promotes competition among different companies, allowing prices to be determined by the market instead of being set by the government. It also encourages innovation as profit-seeking businesses are more likely to invest in creating new products and ideas.Under laissez faire capitalism, businesses can operate with minimal regulations there are few restrictions on hiring practices or what goods they produce. Companies have a great deal of freedom when it comes to setting prices for their goods and services; however, it is important that these prices remain competitive so that customers will continue to choose them over other firms in the market. The lack of regulation may lead to abuse of power by some business owners who could create monopolies or attempt to price fix within their industry; however, this does not happen often because most markets already contain enough competitors that an individual company cannot manipulate prices too drastically without affecting its own profits. The main idea behind laissez faire capitalism is that free markets should be allowed to operate with limited government intervention in order for prosperity and efficiency to thrive. Supporters believe this type of economic system allows resources such as labor and capital to be allocated more efficiently than under traditional forms of government control leading ultimately to higher levels of economic growth and development. However, critics argue that laissez faire economics can lead to large disparities between wealthy individuals/businesses and those less fortunate due to lack of regulation on wages and employment conditions; furthermore, it can result in environmental degradation if unchecked corporate interests are allowed carte blanche access into natural resource exploitation without any oversight from governing bodies.