Social Studies Praxis Practice Test

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What economic system is characterized by private ownership and free market competition?

Socialism
Communism
Capitalism
Feudalism

The correct answer is: Capitalism

The economic system characterized by private ownership and free market competition is capitalism. In a capitalist economy, individuals and businesses are free to own property, make their own production decisions, and engage in commerce with minimal government interference. This system encourages competition among businesses, which can drive innovation, improve quality, and lower prices for consumers. Furthermore, capitalism is often associated with the presence of market forces that determine the prices of goods and services based on supply and demand dynamics. Capitalism stands in contrast to socialism and communism, wherein the means of production may be publicly owned or controlled by the state, with less emphasis on individual ownership and market competition. Feudalism is a historical economic system based on land ownership and a rigid class structure, which differs significantly from the principles of private ownership and competition found in capitalism. Understanding these distinctions helps clarify the defining features of capitalism as the correct answer.