Which term best describes an economy in which a central plan dictates production and distribution?

Which term best describes an economy in which a central plan dictates production and distribution?

• A. Mixed economy
• B. Command economy
• C. Market economy
• D. Traditional economy

Answer: (B)

The key idea here is how production and distribution are coordinated. When a central plan dictates what to produce, how much to produce, and how goods are distributed, the government is directing economic activity rather than letting markets or traditions decide. This setup is a command economy, where planning authority sets targets, allocates resources, and controls outputs. In contrast, a market economy relies on price signals and private decisions in markets, a traditional economy follows long-standing customs and barter, and a mixed economy blends planning with market mechanisms. The description given—central planning directing production and distribution—fits a command economy best.

The key idea here is how production and distribution are coordinated. When a central plan dictates what to produce, how much to produce, and how goods are distributed, the government is directing economic activity rather than letting markets or traditions decide. This setup is a command economy, where planning authority sets targets, allocates resources, and controls outputs.

In contrast, a market economy relies on price signals and private decisions in markets, a traditional economy follows long-standing customs and barter, and a mixed economy blends planning with market mechanisms. The description given—central planning directing production and distribution—fits a command economy best.