Which of the following best describes a command economy?

• A. An economic system where the government makes all production and allocation decisions.
• B. An economic system based on voluntary exchange and private ownership.
• C. An economic system where prices and production are determined by supply and demand in free markets.
• D. An economic system where resources are allocated by tradition and customs.

Answer: (A)

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 all production and allocation decisions.
2. Compare this with other economic systems: a market economy relies on supply and demand with private ownership, a traditional economy relies on customs and traditions, and a mixed economy combines elements of both.
3. Identify key characteristics of a command economy, such as government ownership of resources and centralized decision-making.
4. Analyze each option given in the problem to see which one matches the characteristics of a command economy.
5. Conclude that the option stating 'An economic system where the government makes all production and allocation decisions' best describes a command economy.