Command Economy

Jeffrey Hepburn

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:

  1. What to Produce?
  2. How will it be Produced?
  3. 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


North Korea


  1. Holt Economics Florida
  2. NYU- What is Marxism?

Comment Stream

3 years ago

Good visual aids, videos were a nice touch

3 years ago

Very aesthetically pleasing website, the font and italicization of the page was well done and fit the theme of the page. Great job putting in some John Green videos for support.

3 years ago

Very well-organized website that provides some quality information and differentiates both socialism and communism. Crash course is always resourceful.

3 years ago

Breaking apart Socialism and Communism allowed you to be able to describe their advantages and disadvantages much easier