Which of the following best describes a traditional economy?

• A. An economy where prices and production are determined by supply and demand in free markets.
• B. An economy where decisions are made by a central authority and resources are allocated through government planning.
• C. An economy that combines elements of both market and command systems.
• D. An economy where production and distribution are based on customs, traditions, and beliefs passed down through generations.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of a traditional economy. A traditional economy is one where economic decisions about production and distribution are guided by customs, traditions, and cultural beliefs that have been passed down through generations.
2. Step 2: Compare the characteristics of different economic systems: market economy (prices and production determined by supply and demand), command economy (decisions made by a central authority), and mixed economy (combines elements of market and command systems).
3. Step 3: Identify that a traditional economy differs from these because it does not rely on market forces or government planning but rather on established social customs and practices.
4. Step 4: Recognize that in a traditional economy, roles and economic activities are often inherited, and change occurs slowly, preserving the economic structure over time.
5. Step 5: Conclude that the best description of a traditional economy is one where production and distribution are based on customs, traditions, and beliefs passed down through generations.