Which statement describes a disadvantage of a command economy?

• A. Economic decisions are primarily made by decentralized markets.
• B. Private ownership of resources is widespread and encouraged.
• C. There is often a lack of incentives for individuals to innovate or work efficiently.
• D. Resources are allocated based on consumer preferences and market prices.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what a command economy is — it is an economic system where the government or central authority makes most of the economic decisions, including what to produce, how to produce, and for whom to produce.
2. Step 2: Recognize that in a command economy, private ownership of resources is limited or absent, and markets do not play the primary role in allocating resources.
3. Step 3: Identify that because the government controls production and resource allocation, there is often less motivation for individuals and firms to innovate or work efficiently, as rewards are not directly tied to performance.
4. Step 4: Contrast this with market economies, where decentralized markets and private ownership encourage competition, innovation, and efficient resource use based on consumer preferences and prices.
5. Step 5: Conclude that a key disadvantage of a command economy is the lack of incentives for innovation and efficiency, which can lead to lower productivity and slower economic growth.