Consider the following statements regarding a Centrally Planned Economy: 1. All important decisions regarding production, exchange, and consumption are made by the government. 2. The central authority strictly avoids intervening in the distribution of goods. 3. The government never produces goods itself but only induces individuals to produce them. Which of the statements given above is/are correct?

The correct option is 1 only Explanation A centrally planned economy, also known as a command economy or socialist economy, is a system where the government or a central authority controls the economic activities. The central authority owns the factors of production and plans the allocation of resources to maximize social welfare rather than individual profit. Statement-wise Analysis - Statement 1 is Correct: In a centrally planned economy, the government or central planning authority makes all major economic decisions. This includes determining what goods and services to produce, how to produce them, and how they should be distributed among the population. - Statement 2 is Incorrect: The central authority actively intervenes in the distribution of goods. Unlike a market economy where distribution is determined by purchasing power, a planned economy aims to distribute goods based on the needs of the society to ensure equity and social welfare. - Statement 3 is Incorrect: In this system, the government is the primary producer of goods and services. It owns and operates the means of production (factories, land, resources). It does not merely induce individuals to produce; it directly engages in production to meet the targets set in the economic plan. Key Takeaway Key Takeaway: In a centrally planned economy, the state replaces the market mechanism, controlling production, consumption, and distribution to achieve social objectives rather than profit maximization.

NCERT Class 12 Economics — Chapter 1: Introduction

mcqmedium

Consider the following statements regarding a Centrally Planned Economy:

All important decisions regarding production, exchange, and consumption are made by the government.
The central authority strictly avoids intervening in the distribution of goods.
The government never produces goods itself but only induces individuals to produce them.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A1, 2 and 3
B1 only
C2 only
D1 and 3 only

Did you get this right?

Solution

The correct option is

1 only

Explanation

A centrally planned economy, also known as a command economy or socialist economy, is a system where the government or a central authority controls the economic activities. The central authority owns the factors of production and plans the allocation of resources to maximize social welfare rather than individual profit.

Statement-wise Analysis

Statement 1 is Correct: In a centrally planned economy, the government or central planning authority makes all major economic decisions. This includes determining what goods and services to produce, how to produce them, and how they should be distributed among the population.
Statement 2 is Incorrect: The central authority actively intervenes in the distribution of goods. Unlike a market economy where distribution is determined by purchasing power, a planned economy aims to distribute goods based on the needs of the society to ensure equity and social welfare.
Statement 3 is Incorrect: In this system, the government is the primary producer of goods and services. It owns and operates the means of production (factories, land, resources). It does not merely induce individuals to produce; it directly engages in production to meet the targets set in the economic plan.

Key Takeaway

Key Takeaway: In a centrally planned economy, the state replaces the market mechanism, controlling production, consumption, and distribution to achieve social objectives rather than profit maximization.

Your note

More from Chapter 1: Introduction

Consider the following statements regarding the "Mixed Economy": 1. It is an economy where both the government and the market play a role in economic activities. 2. It is an economy where all decisions are taken solely by the market. 3. India is cited as an example of a mixed economy. Which of the statements given above is/are correct?

easy

Consider the following statements regarding the fundamental nature of an economy: 1. Individuals in a society possess limited resources compared to their needs. 2. The scarcity of resources is a phenomenon faced by individuals but not by the society as a whole. 3. Compatibility between what people collectively want and what they produce is essential for an economy. Which of the statements given above is/are correct?

medium

With reference to the basic economic activities, consider the following statements: 1. Production, exchange, and consumption are considered the basic economic activities of life. 2. The problem of choice arises primarily because resources have single, specific usages. Which of the statements given above is/are correct?

easy

Consider the following statements regarding the "Central Problems of an Economy": 1. The problem of "What is produced" is unrelated to the quantity of goods to be produced. 2. The problem of "How are these goods produced" relates to the choice of technology to be adopted. 3. The problem of "For whom are these goods produced" involves determining the distribution of final goods among individuals. Which of the statements given above is/are correct?

medium

Consider the following statements regarding the allocation of resources: 1. In a market economy, allocation is determined solely by the central planning authority. 2. Allocation of resources refers to how much of which resource is devoted to the production of each good. 3. Allocation of resources has no impact on the combination of goods and services produced. Which of the statements given above is/are correct?

medium

Keep practising Chapter 1: Introduction

Work through every question from this NCERT chapter.

Browse all NCERT Class 12 Economics chapters

The correct option is

1 only

Explanation

Statement-wise Analysis

Statement 1 is Correct: In a centrally planned economy, the government or central planning authority makes all major economic decisions. This includes determining what goods and services to produce, how to produce them, and how they should be distributed among the population.
Statement 2 is Incorrect: The central authority actively intervenes in the distribution of goods. Unlike a market economy where distribution is determined by purchasing power, a planned economy aims to distribute goods based on the needs of the society to ensure equity and social welfare.
Statement 3 is Incorrect: In this system, the government is the primary producer of goods and services. It owns and operates the means of production (factories, land, resources). It does not merely induce individuals to produce; it directly engages in production to meet the targets set in the economic plan.