CMA Foundation · Fundamentals of Business Economics and Management · The Fundamentals of Economics
In which type of economic system are the main decisions on what, how and for whom to produce taken largely by the central government through planning, with the means of production mostly owned by the state?
A socialist, or centrally planned, economy is the system in which the government owns the main means of production and decides what, how and for whom to produce through central planning, rather than leaving these choices to market prices and private owners.
- ACapitalist economy
- BSocialist (centrally planned) economyCorrect
- CPure market economy
- DTraditional subsistence economy
Explanation
In a socialist or centrally planned economy, a central authority owns major resources and decides output, methods and distribution. In a capitalist or pure market economy, private owners respond to prices, so the central planning feature does not apply. A traditional economy relies on custom rather than state planning.
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