Certification in Supplier Diversity Practice Exam

What best describes a centralized economy?

1. Economies where prices fluctuate based on global markets

2. Economies where prices are set administratively

3. Economies operating under a sole import-based system

4. Economies where consumers dictate market prices

The correct answer is: Economies where prices are set administratively

A centralized economy is best described as one where prices are set administratively, which means that the government or a central authority has control over the pricing of goods and services. In this type of economy, decisions about production, investment, and distribution are made by central planners, and the government often determines the price for various goods instead of allowing market forces such as supply and demand to dictate them. This structure is typically seen in command economies or planned economies, where the state plays a significant role in regulating economic activities. The other options describe different economic conditions. Fluctuating prices based on global markets refer to a more decentralized and market-driven economy, where supply and demand influence pricing. An import-based system focuses specifically on trade rather than the internal setting of prices. Lastly, an economy where consumers dictate market prices represents a free market system, in which the forces of supply and demand are allowed to operate freely without administrative controls. Each of these reflects characteristics of market economies, contrasting with the centrally regulated nature of a centralized economy.