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Which economic system is characterized by a government making resource allocation decisions?

  1. Market economy

  2. Mixed economy

  3. Command economy

  4. Traditional economy

The correct answer is: Command economy

A command economy is characterized by a central authority, typically the government, making decisions about the allocation of resources and the production of goods and services. In this system, the government usually controls all aspects of economic activity, including what is produced, how it is produced, and for whom it is produced. This means that individual choices and market forces have little influence over economic outcomes. In contrast, a market economy relies on supply and demand to drive economic decisions, where consumers and producers interact freely. A mixed economy blends elements of both command and market systems, allowing for some degree of private enterprise alongside government regulation. In a traditional economy, economic decisions are based on customs, habits, and historical precedence, often relying on subsistence farming and barter instead of a centralized authority. Understanding these distinctions clarifies why the command economy is the best fit for the description in the question.