Which of the following is a characteristic of a traditional economy?

• A. Production is driven primarily by technological innovation.
• B. Economic decisions are based on customs and historical precedent.
• C. Prices are determined entirely by supply and demand in free markets.
• D. The government centrally plans and controls all economic activity.

Answer: (B)

Verified step by step guidance

1. Understand what a traditional economy is: it is an economic system where decisions about production and distribution are based on customs, traditions, and historical precedent rather than on innovation or market forces.
2. Identify the key features of a traditional economy, such as reliance on established practices, limited technological change, and economic roles often passed down through generations.
3. Compare the given options with the characteristics of a traditional economy:
4. Recognize that 'Production is driven primarily by technological innovation' describes a more modern or market economy, not a traditional one.
5. Note that 'Prices are determined entirely by supply and demand in free markets' applies to a market economy, and 'The government centrally plans and controls all economic activity' describes a command economy, neither of which fit the traditional economy model.