Which of the following is a characteristic of a centrally-planned economy?

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Question: Which of the following is a characteristic of a centrally-planned economy?

Option presented: All production decisions are made exclusively by the government.

To analyze this, recall that a centrally-planned (command) economy is defined by significant, if not total, government control over economic activity. In such systems, the state typically determines what goods and services are produced, in what quantities, and often sets prices and distribution plans. This central authority allocates resources according to a national plan rather than through market signals like price mechanisms driven by supply and demand.

Now evaluating the statement: “All production decisions are made exclusively by the government.” This captures the core hallmark of a centrally-planned economy—the government directs production decisions rather than firms and consumers freely negotiating outcomes in a market. The word “exclusively” emphasizes the extent of control characteristic of these systems, which is consistent with the defining feature of central planning.

Even though other potential characteristics exist in discussions of different economies, such as market competition, private property rights, or autonomous firm decision-making, they are not consistent with central planning. In contrast, market-driven economies rely on private producers and price signals to coordinate production, and mixed economies blend governmental intervention with market activity. Therefore, the statement aligns with the essential trait of a centrally-planned economy.

In summary, because a centrally-planned economy features government-directed production and allocation, the assertion that all production decisions are made exclusively by the government accurately describes a key characteristic of such an economy.

SOC-ECONB Module 1 Pretest

Which of the following is a characteristic of a centrally-planned economy?

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