How it Addresses the Three Basic Economic Questions
A command economy is one in which a central power, usually the government authorities, decide everything about the economy. They choose:
- What to Produce?
- How will it be Produced?
- For whom will it be Produced?
This is called a Centrally Planned Economy. They use [often] authoritarian and centralized planners in order to directly enact policies and affect the economy, setting wages and allocating the resources for production as they so decide.
Based on Marxism of the early 19th Century, there are 2 basic kinds of command economy; Socialism and Communism.
Advantages of Socialism
Basic Resources are Government Owned with the rest Privatized
Government Planners can allocate Basic Resources
Private Resources are still under fairly free market trade
Government bases its decisions on the industries
Advantages of Communism
Government Owns the Resources
Authoritarian System Means that Economic Response is Immediate
Disadvantages of both (Compared to Market Economy)
All resources are privately owned in Market Economy so no government control
Allocation is privately decided without authoritarian worries
Government's role is very limited
Central planners of Command Systems usually don't understand local conditions
Because wages are predetermined in Command Systems, workers aren't motivated to try for non-existent raises or competing jobs, or to work harder to provide more output
Prices are often well below that of a market economy leading to shortages
Often leads to suffering of the people
- Holt Economics Florida
- NYU- What is Marxism?