if government should not intervene in business, then how does an economy operate or correct itself without government intervention

It doesn't.

Check these sites.

http://economics.about.com/od/governmenttheeconomy/a/laissez_faire.htm

http://en.wikipedia.org/wiki/Laissez-faire

The idea of government intervention in business is a complex topic within economics. While some argue that government intervention is necessary to ensure fair competition and prevent market failures, others advocate for minimal government involvement, promoting free markets and laissez-faire economics.

If we consider a scenario where the government does not intervene in business, the economy can still operate and correct itself through various mechanisms:

1. Market Forces: In a free market, supply and demand determine the prices of goods and services. Prices act as signals to both buyers and sellers to make decisions. When demand for a particular product is high, its price tends to rise, incentivizing businesses to produce more. Conversely, when demand decreases, prices go down, encouraging businesses to reduce production. This self-adjustment mechanism enables the economy to correct itself without government intervention.

2. Competition: In a competitive market, businesses strive to attract customers by offering better products, services, or prices. Competition fosters innovation, efficiency, and cost-effectiveness, as businesses must continuously improve to stay ahead. This self-regulating aspect allows for the economy to operate smoothly and correct itself as businesses adapt to changing consumer preferences and market conditions.

3. Private Regulation and Reputational Mechanisms: In the absence of government intervention, businesses rely on reputational mechanisms to ensure trust and quality assurance. Customers tend to prefer companies with a good reputation for delivering high-quality products or services. Additionally, professional associations and industry self-regulation can act as alternative mechanisms for setting standards and enforcing ethical practices.

4. Contract Law and Property Rights: Strong legal frameworks surrounding contract law and property rights are crucial for facilitating voluntary transactions, protecting investments, and ensuring that business dealings are fair and enforceable. Well-established legal systems with clear rules and enforcement mechanisms provide a solid foundation for encouraging business activities without heavy government intervention.

It's important to note that while minimal government intervention in business can bring benefits, there are also potential drawbacks, such as market failures or the concentration of power in the hands of a few dominant players. Striking a balance between government intervention and free markets is a subject of ongoing debate in economics and public policy.