Economics · Economic Systems

The hypothetical country 'Solaria', a historically poor nation, is transitioning its economic system. The current economic structure is characterized by: I. Private ownership of land and capital in the agricultural and service sectors, but all heavy industries (energy, steel, banking) remain state-owned monopolies. II. The government sets the minimum wage and heavily subsidizes basic food, electricity, and fuel prices, consuming nearly 40% of the GDP through its spending. III. The Solaria Planning Commission sets a five-year target for national savings and investment rates, but individual firms make their own production decisions based on market prices in the non-state-owned sectors. The Solaria Finance Minister proposes a new reform package: 'The Privatization of State Banks and Steel Mills and the immediate removal of all price subsidies to achieve allocative efficiency'. Based on this scenario and fundamental economic concepts, analyze the following three inferences: Inference 1: Solaria currently operates as a Mixed Economy (leaning heavily towards the planned side), and the reforms would push it closer to a pure Market Economy by significantly increasing the scope of the price mechanism and reducing the Government's role in resolving the central question of 'For Whom to Produce'. Inference 2: The Finance Minister's stated goal of achieving Allocative Efficiency is directly addressed by the removal of all price subsidies, as subsidies distort the relationship between Marginal Cost (MC) and Price (P), leading to over-consumption and resource misallocation in the subsidized sectors. Inference 3: The existence of the Solaria Planning Commission's five-year targets, even alongside private decision-making, classifies its current state as a Command Economy, as the fundamental direction of resource use is still dictated by a central authority, regardless of the private sector's existence. Which of the following inferences drawn from the scenario is/are correct?