The Idea That Business Failure Is a Positive Force for Progress

question 174

Multiple Choice

The idea that business failure is a positive force for progress in a market economy is often summarized by the term "creative destruction." Which of the following best states the central idea of this principle?

• A) When a business fails, the assets and resources from that business become unemployed, resulting in higher government subsidies.
• B) Business failure allows the assets and resources from that business to move into other areas where those resources are now more productive and highly valued.
• C) Only through frequent business failure will it be possible to avoid income being concentrated in a few rich entrepreneurs.
• D) The new, rival businesses that drive out old competitors tend to be less efficient and less creative than the older established businesses.

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Definitions:

Common Stock

A type of security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends.

Retained Earnings

The portion of net income that is not distributed to shareholders but is kept by the company for reinvestment or debt payment.

End-Of-Period Spreadsheet

A tool used in accounting to compile all balances and adjustments at the end of an accounting period before the preparation of financial statements.

Journal Entry

A record in accounting that represents a transaction and its effect on various accounts, used to keep track of all business transactions in a company's books.