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CA Foundation · Business Economics · Nature and Scope of Business Economics

In a centrally planned economy, the problem of 'for whom to produce' is mainly solved by:

In a centrally planned economy, the government mainly decides for whom to produce, determining how output is distributed among people through planning. Market economies instead rely on purchasing power and the price mechanism, so options based on profit motive or free markets describe a different system.

  1. AThe government's decisions on distribution of outputCorrect
  2. BConsumers' purchasing power in free markets
  3. CProfit motive of private producers
  4. DPrice changes caused by demand and supply

Explanation

In a centrally planned economy, the state decides what is produced and how output is distributed among people. In a market economy, distribution depends on purchasing power and income, driven by prices. Hence the profit motive and price mechanism describe market economies, not planned ones.

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