WEST-E Social Studies Practice Test

What economic inefficiency is illustrated by the abrupt cut in financial resources to the steel industry in country X?

1. Inefficiency associated with command economic systems

2. Increased investment in alternative resources

3. Economic sustainability during transitions

4. Effective resource allocation by the government

The correct answer is: Inefficiency associated with command economic systems

The choice indicating inefficiency associated with command economic systems is particularly relevant in this context. Command economies are characterized by government control over economic resources and production decisions. When financial resources are abruptly cut from an industry, such as the steel industry in country X, it reflects a lack of flexibility and responsiveness that can typify these systems. In a command economy, decisions are made at the government level rather than through the market, often leading to misallocation of resources. This can result in industries receiving inadequate funding when they might be essential for economic stability and growth, thereby highlighting their inefficiency. The steel industry, being crucial for infrastructure and manufacturing, would likely suffer from such cuts, impacting the broader economy negatively. Additionally, the abrupt nature of the funding cuts suggests a failure to plan and assess the industry’s needs, which further showcases the economic inefficiencies inherent in command economies. These systems often lack the mechanisms for feedback and adjustment that exist in more market-driven economies. This misallocation can ultimately lead to reduced production capacity, job losses, and a hindered overall economic performance.