Stormie Zanzibar owns a bakery in the fictitious country of Olombia. Each month
ID: 1137507 • Letter: S
Question
Stormie Zanzibar owns a bakery in the fictitious country of Olombia. Each month the government’s market ministry mails her a large list of the regulated price of goods which include products like bread, muffins and flat bread. The list also dictates the types of goods she can sell at the bakery and what she is to charge. Because of the regulations placed on these goods, Stormie has increased her production of sweets, pies, cakes, croissants and buns and decreased her supply of breads, muffins and flat bread. She has taken these steps because the sweet goods’ prices are not government controlled. Stormie Zanzibar lives under what type of economy?
Explanation / Answer
Stormie Zanzibar lives under command economy.
In a command economy, all decisions of the economy are made by the government regarding what to produce, what to charge etc. It doesn't allow the tradtitional forces of demand and supply to determine the prices as what happens in a market economy. In a market economy, government has a very limited role and it can not interfere in the production process. There is also a mixed economy which has characteristics of both commany economy and market economy. But, it also allows supply and demand to determine how much to produce and charge unlike what's happening in the economy where Stormie is living. She is dictated everything by the government and works according to that. So, government has a key role in her economy. Thus, she is living under command economy.