What is the key difference between a market economy and a command economy?

• A. In a market economy, the government controls production; in a command economy, private property drives decisions
• B. In a market economy, decisions are driven by supply and demand with private property; in a command economy, the government makes major economic decisions
• C. Market economies have no trade; command economies rely on trade
• D. Market economies rely on central planning, command economies rely on markets

Answer: (B)

The main idea is who controls the key economic decisions and how resources are allocated. In a market economy, private property rights let individuals and firms own resources and make production and consumption choices through voluntary exchanges in response to price signals. Prices coordinate decisions: if a good is in high demand, its price rises and production tends to increase; if demand drops, production can fall. This system relies on competition and consumer choice.

In a command economy, the government plans and directs what will be produced, how it will be produced, and who gets the output, rather than letting prices and markets guide those decisions. Central planning sets goals and allocates resources accordingly.

That contrast is why the correct idea says decisions in a market economy are driven by supply and demand with private property, while in a command economy the government makes major economic decisions.

The other statements mix up who controls property and decisions, and they misstate the role of trade and planning (market economies do involve trade and do not rely on central planning).