Which of the following economic theories encourages competition and innovation?

Laissez-faire economics promotes a system where businesses operate with minimal government intervention. This approach encourages competition by allowing market forces to dictate the success or failure of enterprises. In a laissez-faire environment, companies must innovate to gain an advantage, respond to consumer demands, and differentiate their products from competitors. This leads to increased efficiency and the development of new technologies, as firms strive to meet the needs of consumers in a competitive market.

In contrast, mercantilism, which emphasizes heavy regulation and the accumulation of wealth through trade surpluses, often limits competition by favoring certain industries or companies. Command economies and planned economies centralize control, stifling competition and hindering innovation by implementing strict governmental oversight over production and economic activities.