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Key Concept: Command economy Which of the following statements best describes the role played by prices in a command economy such as the former Soviet Union? a. Prices were used to allocate resources. b. Prices played the same role as in a market economy. c. Prices and queuing were used to ration final goods and services. d. None of the statements are true.

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Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040

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BuyFindarrow_forward

Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040
Chapter P8, Problem 6KC
Textbook Problem
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Key Concept: Command economy

Which of the following statements best describes the role played by prices in a command economy such as the former Soviet Union?

  1. a. Prices were used to allocate resources.
  2. b. Prices played the same role as in a market economy.
  3. c. Prices and queuing were used to ration final goods and services.
  4. d. None of the statements are true.

To determine

The role of prices in the command economy.

Explanation of Solution

The foreign exchange market is a market where the currencies of different countries are bought and sold. The exchange rate is the rate at which a domestic currency is being exchanged with the foreign currency. The exchange rate is being calculated on the basis of the demand for the foreign currency and the supply of the foreign currency.

Option (c):

In a market economy, the prices play a role of bringing back the equilibrium in the economy. When the demand is higher than the supply, prices increase causing the demand to fall back to equilibrium and vice versa. However, in a command economy, when there is shortage of goods and services, the government uses the rationing system to bring the equilibrium. Thus, prices in the command system act as the means to ration final goods and services in the economy. This means that option 'c' is the correct answer.

Option (a):

The market economy uses the prices to bring about the equilibrium in the economy whereas the command economy uses the prices and queuing to determine the goods and services and its rationing in the market...

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