Which of the following best describes a command economy?

• A. An economy where supply and demand determine the price
• B. An economy controlled by the government
• C. An economy that encourages entrepreneurship
• D. An economy with multiple competing firms

Answer: (B)

A command economy is one where the government exerts significant control over the allocation of resources, production, and the prices of goods and services. This type of economy operates under a centralized decision-making structure, where the government often directs what is produced, how much is produced, and the pricing of goods, rather than relying on the free market dynamics of supply and demand.

In contrast, an economy where supply and demand determine the price refers to a market economy, which operates on principles of free enterprise, allowing consumers and producers to dictate economic activities. An economy that encourages entrepreneurship is typically characterized by minimal government restrictions, allowing individuals to innovate and start their own businesses. An economy with multiple competing firms also suggests a market-oriented system, as competition is a fundamental aspect of a capitalist structure, incentivizing efficiency and innovation.

Thus, the defining feature of a command economy is its government control, making the description of an economy controlled by the government the most accurate representation of this economic system.