Which statement best describes a command economy?

• A. Resources are allocated based on tradition and customs passed down through generations.
• B. Prices and production are determined by the forces of supply and demand in the market.
• C. Individuals and firms freely choose what to produce and consume with minimal government intervention.
• D. The government makes all major economic decisions and controls the allocation of resources.

Answer: (D)

Verified step by step guidance

1. Understand the definition of a command economy: it is an economic system where the government centrally plans and controls major economic activities, including resource allocation, production, and pricing.
2. Compare the given statements to the characteristics of different economic systems: traditional economy (based on customs), market economy (based on supply and demand), and mixed or capitalist economies (with individual choice and limited government intervention).
3. Identify that the statement 'The government makes all major economic decisions and controls the allocation of resources' aligns with the core feature of a command economy.
4. Recognize that the other statements describe different economic systems: tradition-based allocation refers to a traditional economy, supply and demand pricing refers to a market economy, and individual freedom with minimal government intervention refers to a market or capitalist economy.
5. Conclude that the best description of a command economy is the one where the government centrally controls economic decisions and resource allocation.