Which of the following statements is true of a traditional economy?

• A. Innovation and rapid technological change are the main drivers of growth.
• B. Prices and production are determined solely by government planning.
• C. Resources are allocated through a competitive market system.
• D. Economic decisions are based on customs, traditions, and beliefs.

Answer: (D)

Verified step by step guidance

1. Understand the definition of a traditional economy: it is an economic system where decisions about production and distribution are based on customs, traditions, and cultural beliefs rather than market forces or government directives.
2. Analyze each statement in the problem by comparing it to the characteristics of a traditional economy:
3. 1. Innovation and rapid technological change are the main drivers of growth — this is typical of a market or mixed economy, not a traditional one.
4. 2. Prices and production are determined solely by government planning — this describes a command economy, not a traditional economy.
5. 3. Resources are allocated through a competitive market system — this is a feature of a market economy, not a traditional economy.
6. 4. Economic decisions are based on customs, traditions, and beliefs — this aligns perfectly with the defining feature of a traditional economy.