Compare resource allocation in market, command, and mixed economies.

• A. Market uses central planning; command uses price signals; mixed uses only private exchange.
• B. Market uses price signals and voluntary exchange; command uses central planning; mixed uses both with government correcting market failures.
• C. Market outcomes are always efficient; command outcomes are always inefficient; mixed outcomes are always inefficient.
• D. Market uses taxation only; command uses subsidies; mixed uses quotas.

Answer: (B)

Resource allocation is determined by how an economy answers the question “What to produce, how to produce, and for whom to produce?” In a market economy, this happens mainly through price signals and voluntary exchange. Prices rise or fall to reflect scarcity and value, guiding producers and consumers to adjust what they supply and demand, with private property and competition helping coordinate decisions.

In a command economy, a central planner or government decides what will be produced, how much, and who gets the goods and services. Allocation is directed from above rather than emerging from market interactions.

A mixed economy blends these approaches. Most allocation occurs through markets, but the government intervenes to correct market failures, provide public goods and redistribution, and regulate or tax to achieve social or economic goals. This combination means both price signals and central decisions influence resource use.

So the best choice describes the market relying on price signals and voluntary exchange, the command relying on central planning, and the mixed economy using both with government actions to address market shortcomings.