Prepare for the AP World History Exam with comprehensive questions and flashcards. Tackle multiple-choice questions and detailed explanations to enhance your understanding. Ace your exam!

Capitalism is characterized as an economic system in which private individuals or businesses own capital goods, meaning the means of production and distribution are operated for profit. In this system, the allocation of resources and production is guided by competition in a free market, allowing for innovation and consumer choice. This structure contrasts with systems that advocate for public ownership, where resources are owned collectively and managed by the government.

In capitalism, the driving force is the pursuit of profit, which incentivizes entrepreneurs to develop new products and services while responding to consumer demand. The interaction between supply and demand shapes prices, leading to efficient resource allocation without the central planning typical in other economic systems. This fundamental principle of private ownership of capital further emphasizes individual investment and risk-taking as pivotal aspects of economic growth and prosperity, distinguishing it from other approaches that might centralize control or limit enterprise.

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