Which statement best describes a command economy? A. Individuals make most economic choices. B. Market forces decide most economic questions. C. The government controls most economic activity. D. Businesses determine most economic outcomes.
The Correct Answer and Explanation is:1
Correct Answer: C. The government controls most economic activity.
A command economy, also known as a planned economy, is an economic system where the government makes all or most of the decisions regarding the production and distribution of goods and services. This includes determining what to produce, how to produce it, and who receives the products. In such economies, private ownership of resources and businesses is limited or nonexistent, and the central government typically owns the means of production.
In contrast to market economies (where market forces like supply and demand guide economic decisions), command economies rely on central planning. A government agency often sets production targets, allocates resources, sets prices, and directs labor. The main goal is often to ensure equality, social welfare, or to support government objectives, such as rapid industrialization or military buildup.
Some of the most well-known examples of command economies are the former Soviet Union, North Korea, and Cuba. These countries used central planning to direct nearly all economic activity. For instance, factories were told how much to produce, farmers were told what to grow, and citizens had limited choices in consumer goods. While this system can mobilize resources quickly and achieve certain goals, it often leads to inefficiencies, shortages, and lack of innovation because there’s no competition or profit incentive.
In comparison:
- A. Individuals making most economic choices reflects a market economy or free-market system.
- B. Market forces (like supply and demand) controlling the economy also describes a capitalist or market economy.
- D. Businesses determining outcomes fits with capitalism, where private companies drive production based on consumer demand.
Thus, the best description of a command economy is: “The government controls most economic activity.”
