Which of the following statements is true about risk management in market systems versus command systems?
A) Market systems manage risk better because entrepreneurs taking risks bear the costs of poor decisions, whereas in command systems government decision makers don't bear those costs.
B) Neither system is better than the other in terms of risk management; both systems are equally susceptible to natural disasters and changes in consumer preferences.
C) Command systems manage risk better because the government controls most economic activity and can therefore eliminate risk.
D) Market systems face risk because of the possibility of profits and losses; command systems don't face risk because they are not profit driven.

Question

Quizplus · Accepted Answer

Market systems manage risk better because entrepreneurs taking risks bear the costs of poor decisions, whereas in command systems government decision makers don't bear those costs. This incentivizes market participants to carefully assess and manage risks, as making poor decisions can result in significant financial losses. Additionally, the competitive nature of market systems encourages innovation and adaptation in response to changing conditions or emerging risks. In contrast, command systems may be less effective at managing risks because government decision makers may not have the same level of personal financial incentives to make prudent decisions, and because centralized planning may be slower to adapt to changes in the economic environment.

Which of the Following Statements Is True About Risk Management