Why is rewarding risk-taking considered an advantage of capitalism?

• A. It eliminates all forms of market competition.
• B. It encourages innovation and economic growth by motivating entrepreneurs to develop new products and services.
• C. It guarantees equal distribution of wealth among all members of society.
• D. It ensures that government controls all major industries.

Answer: (B)

Verified step by step guidance

1. Understand the role of risk-taking in capitalism: Entrepreneurs and businesses often take financial and strategic risks to create new products, services, or technologies.
2. Recognize that capitalism rewards successful risk-taking through profits and market share, providing incentives for entrepreneurs to innovate.
3. Connect the reward mechanism to innovation: When entrepreneurs are motivated by potential rewards, they are more likely to invest in research and development, leading to new and improved products and services.
4. Link innovation to economic growth: New products and services can increase productivity, create jobs, and expand markets, which drives overall economic growth.
5. Contrast this with other economic systems where risk-taking might not be rewarded, highlighting why capitalism's encouragement of risk-taking is considered an advantage.