Which statement accurately describes how a planned economy allocates resources?

Which statement accurately describes how a planned economy allocates resources?

• A. In a planned economy, resources are allocated by centralized government decisions.
• B. In a planned economy, resources are allocated via supply and demand.
• C. In a planned economy, prices are determined solely by consumer choice.
• D. In a planned economy, private markets set production.

Answer: (A)

Resource allocation in a planned economy is directed by the government through central planning. The state decides what will be produced, how much, and how resources like labor, factories, and capital are assigned to meet those targets. Prices are often set or heavily influenced by the plan rather than by market forces, and private markets have little role in directing production. This is why centralized government decisions best describe how resources are allocated in a planned economy. The other statements reflect market mechanisms—allocation by supply and demand, price signals from consumer choices, or production set by private markets—which are not the hallmark of a planned economy.

Resource allocation in a planned economy is directed by the government through central planning. The state decides what will be produced, how much, and how resources like labor, factories, and capital are assigned to meet those targets. Prices are often set or heavily influenced by the plan rather than by market forces, and private markets have little role in directing production. This is why centralized government decisions best describe how resources are allocated in a planned economy. The other statements reflect market mechanisms—allocation by supply and demand, price signals from consumer choices, or production set by private markets—which are not the hallmark of a planned economy.