Which statement best describes a command economy?

Which statement best describes a command economy?

• A. The government controls prices and production
• B. The market determines prices through supply and demand
• C. Private ownership is illegal and sales are unregulated
• D. Individuals freely set wages

Answer: (A)

In a command economy, the government makes the big decisions about how the economy runs. The statement that the government controls prices and production reflects this central planning approach: planners decide what goods to produce, how much to produce, and at what prices they’ll be sold, rather than letting markets set those things through supply and demand. In such systems, the state often owns key resources and enterprises, directing economic activity from the top down. This contrasts with a market economy, where prices emerge from the forces of supply and demand in open markets, and individuals and businesses freely decide what to produce and at what prices. While some command economies may restrict private ownership or regulate wages, the strongest and most defining feature is that central authorities guide production and pricing decisions rather than market-driven mechanisms.

In a command economy, the government makes the big decisions about how the economy runs. The statement that the government controls prices and production reflects this central planning approach: planners decide what goods to produce, how much to produce, and at what prices they’ll be sold, rather than letting markets set those things through supply and demand. In such systems, the state often owns key resources and enterprises, directing economic activity from the top down.

This contrasts with a market economy, where prices emerge from the forces of supply and demand in open markets, and individuals and businesses freely decide what to produce and at what prices. While some command economies may restrict private ownership or regulate wages, the strongest and most defining feature is that central authorities guide production and pricing decisions rather than market-driven mechanisms.