Benefits and desadvantqges of a free enterprise economy system Advantages Supply and Demand In a free-enterprise system, the value of various goods and services are determined by market--that is all of the potential buyers of that good or service. For instance, if a certain good is scarce but in high demand, such as gold, the price will be high, while if a good is plentiful and demand is low, such as wood chips, the price will be low. The free-enterprise system tends to lead to socially optimal prices so long as there is adequate competition in the economy. Incentives One of the basic principles of economics is that people respond to incentives. In a free enterprise system, there is a large financial incentive to work hard and create successful businesses because the business owner is able to keep all the money he earns. For instance, in a free-enterprise system, a contractor could work overtime and make extra money, while in a different economic system such as a communist