Question

All the following are features of a communist economy EXCEPT (A) all the factories are owned by the government, which controls all industries. (B) the prices of all goods and services are controlled by the government. (C) the government encourages entrepreneurs to start, own, and operate their own companies. (D) the government makes all economic decisions.

Short answer

The correct answer is (C) the government encourages entrepreneurs to start, own, and operate their own companies, as it does not describe a feature of a communist economy. In a communist economy, the government controls all industries, and private entrepreneurship is not promoted.

Step-by-step solution

Review Each Statement

Let's analyze each statement to check if they are features of a communist economy or not. (A) all the factories are owned by the government, which controls all industries: This statement describes a characteristic of a communist economy, where the government owns and controls all industries. (B) the prices of all goods and services are controlled by the government: Thisstatement is also a characteristic of a communist economy. In such an economy, the government controls the prices of goods and services to ensure equal distribution of resources. (C) the government encourages entrepreneurs to start, own, and operate their own companies: Analyzing this statement, it does not describe a feature of a communist economy. In a communist economy, the government controls all industries, and private entrepreneurship is not promoted. (D) the government makes all economic decisions: This statement is also consistent with a communist economy, where the government plans and makes all economic decisions.

Identify the Exception

Out of the four statements, we can see that statement (C) is the one that does NOT describe a feature of a communist economy. Therefore, the correct answer is: (C) the government encourages entrepreneurs to start, own, and operate their own companies.

Key concepts

Economic Systems

Understanding the various economic systems is crucial for grasping how a country organizes its production, distribution, and consumption of goods and services. An economic system dictates the means by which countries and governments distribute resources and trade goods and services.

There are several types of economic systems, including capitalism, socialism, and communism. In a capitalist economy, private individuals and businesses own the means of production and operate for profit. Socialist economies may have a mix of private and state ownership, and the distribution of resources is influenced by societal needs. Communist economies, on the other hand, typically involve complete government ownership and centralized planning.

Different economic systems have distinctive approaches to solve the basic economic problems of what to produce, how to produce, and for whom to produce. Free-market economies rely on supply and demand to answer these questions, while planned economies such as communism use central plans to guide economic decisions.

Government Ownership

The government ownership in an economic context refers to assets and enterprises that are controlled by the state or government, as opposed to private entities. This is a defining trait of many non-capitalist economic systems, such as socialism and especially communism.

Under communism, the government ownership extends to all major industries and means of production, including factories, raw materials, and resources. This is rooted in the belief that state ownership prevents exploitation by private capitalists and ensures that production benefits all members of society equitably.

Often, government ownership means that strategic industries like energy, transportation, and defense can be closely controlled to serve the public interest rather than individual profit motives. However, this may lead to efficiency issues, as government-run organizations do not face competition which can lead to a lack of innovation and responsiveness to consumer preferences.

Government Price Control

In the context of a communist economy, government price control is a tool used to regulate the economy by setting the prices of goods and services rather than allowing them to fluctuate according to market forces. The rationale behind this is to maintain affordability and prevent inflation or shortages.

Price controls can take the form of price ceilings, which limit the maximum price of goods to prevent sellers from charging exorbitant prices during shortages, and price floors, which set a minimum price to ensure producers can cover the costs of production.

While government price controls aim to ensure a fair distribution of goods and prevent excess profits or surpluses, they often lead to consequences like black markets, reduced supply, and decreased quality of goods and services, because providers have fewer incentives to produce more or to innovate when profits are restricted by price ceilings.