NCERT Class 12 Economics — Chapter 1: Introduction

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In a centrally planned economy, if a good is important for well-being but not produced adequately by individuals, the government may:

Official previous-year question

Verified 1 Aug 2026.

Options

AImport the good exclusively
BEither induce production or produce it directly
CInduce individuals to produce it
DProduce the good itself

Did you get this right?

Solution

Correct Option

The correct option is Either induce production or produce it directly.

Explanation

A centrally planned economy (or command economy) is an economic system where the government or a central authority makes all major economic decisions regarding the production, exchange, and consumption of goods and services. The primary objective is usually social welfare rather than profit maximization.

Detailed Analysis

In such an economy, the allocation of resources is determined by the central authority based on the needs of society.

Role of the Government: The government holds the ultimate responsibility to ensure that goods essential for the well-being of the society are available.
Mechanism of Intervention: If individuals or existing production units fail to produce an adequate amount of a necessary good, the central authority intervenes. According to standard economic theory, the government has two primary courses of action:
1. Induce Production: The government may provide directives, incentives, or mandates to induce individuals or sub-units to produce the required good.
2. Direct Production: The government may decide to mobilize resources and produce the good itself through state-owned enterprises.

Therefore, the government retains the flexibility to either encourage individuals to produce the good or undertake the production directly to meet societal needs.

Key Takeaway: In a centrally planned economy, the central authority ensures the supply of essential goods by either producing them directly or inducing individuals to produce them, prioritizing social welfare over market forces.

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?

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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?

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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?

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Correct Option

The correct option is Either induce production or produce it directly.

Explanation

Detailed Analysis

In such an economy, the allocation of resources is determined by the central authority based on the needs of society.

Role of the Government: The government holds the ultimate responsibility to ensure that goods essential for the well-being of the society are available.
Mechanism of Intervention: If individuals or existing production units fail to produce an adequate amount of a necessary good, the central authority intervenes. According to standard economic theory, the government has two primary courses of action:
1. Induce Production: The government may provide directives, incentives, or mandates to induce individuals or sub-units to produce the required good.
2. Direct Production: The government may decide to mobilize resources and produce the good itself through state-owned enterprises.

Therefore, the government retains the flexibility to either encourage individuals to produce the good or undertake the production directly to meet societal needs.