Question

State planners in Country A met to decide what the country should focus on producing. After much deliberation, they decided it would be in the country’s best interest to use their limited resources to produce automobiles instead of other consumer goods, such as electronics or textiles. The state planners passed their decision down to factories, and allocated to them raw materials, workers, and other resources needed to produce automobiles. Factories were then told how much they should produce with these resources and who the final products should be shipped to. What kind of economy is described above? How do you know?

a) Command economy
b) Market economy
c) Mixed economy
d) Traditional economy

Answer 1

The economy described is a command economy because the government determines what to produce, how to produce, and who will receive the products, rather than allowing market forces to decide these elements.

Step-by-step explanation:

The economy described in the provided scenario is a command economy. In such an economy, the government plays a substantial role in deciding what goods and services are going to be produced, how they will be produced, and for whom they will be produced. State planners make significant decisions about the allocation of resources and the production targets for industries, rather than letting market forces such as supply and demand dictate these factors. In the scenario, state planners chose to focus on automobile production and directed factories on the amount to produce and the distribution, which are hallmarks of a centrally planned economy.