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Difficulty: MediumSolutions to Basic Economic Problems across Systems

In a command economic system, the fundamental economic question of 'how to produce' is resolved primarily by competitive profit-maximizing private firms choosing cost-effective techniques.

Answer: Answer

Answer

False
The statement is false because the central planning authority in a command economy decides production techniques and resource combinations based on state targets, whereas competitive private firms operate under a free market or capitalist system.

Step-by-Step Solution

1
Identify the economic system and the specific basic economic problem highlighted in the statement.
The statement focuses on the question of 'how to produce' within a command (socialist) economic system.
Understanding which authority or mechanism drives decisions is essential for evaluating economic systems.
2
Analyze how 'how to produce' is resolved in a command economy versus a market economy.
In a command economy, state agencies and central planners determine production techniques and allocate capital/labor. In contrast, competitive private firms aiming to maximize profit resolve this issue in a free market economy.
Central planning replaces price signals and private profit motives in command economies.
3
Evaluate the truth value of the statement.
The statement incorrectly describes private firm profit maximization as the solution mechanism in a command economy, making it false.
The mechanism described belongs to market capitalism, not command socialism.

Key Concept

Solutions to Basic Economic Problems across Systems
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Solutions to Basic Economic Problems across Systems

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