An economy experiences a significant increase in consumer demand for electric vehicles. Under a free-market system, resources are reallocated via the price mechanism, whereas in a command economy, this reallocation is decided by state planners. Which of the following statements correctly distinguishes how these two systems reallocate resources to meet this change?
In the free-market system, the increase in demand causes price to rise, signaling to profit-seeking firms to allocate more resources to electric vehicle production, whereas in the command economy, resources are shifted to electric vehicles through direct state planning and output targets.
In the free-market system, the state uses subsidies to lower prices and guide resources to electric vehicles, whereas in the command economy, the market price mechanism is allowed to operate freely to ensure consumer sovereignty is satisfied.
In the free-market system, firms collude to ration resources and maintain high prices, whereas in the command economy, the state relies on decentralized price signals to match supply with consumer preferences.
In the free-market system, the allocation of resources is determined entirely by public sector directives, whereas in the command economy, resources are dynamically allocated by private firms competing to maximize consumer utility.
