What is a Command Eocnomy
Command economies are economies that are run by society's leaders; people like members of the central government are prime candidates to run command economies
Examples of a Command Economy
One of the biggest examples of a command economy historically speaking is the Soviet Union; now known as Russia. An example of a command economy in more recent years is North Korea. In each of these countries some or all of the economy is controlled by the government.
Advantages and Disadvantages
- It provides for everyone (including the sick and old who are economically inactive)
- It allows for the production of items that may not make money in a market economy
- It can overcome market failure and inequality
- It can prevent mass unemployment
- It can ensure everyone has access to their basic needs
- The people who make the economic decisions have little understanding of local conditions and thus make poor decisions
- Workers have little to no motivation to improve their productivity because their wages stay the same no matter what
- There is no private property
- It threatens freedom and liberty by creating a strong central government.
- Consumers are not able to get what they prefer
The Three Economic Questions
Who Owns the Resources?
In a command economy the government owns all or a large portion of the factors of production. In a communist country all of the resources belong to the government. However, in a socialist country the government owns the basic resources and all the rest are privately owned.
How are resources allocated?
In a command economy resources are primarily allocated through "government planners". They are the ones that run the economy. In a communist country those government planners decide how the resources are used. Whereas, a socialist country would allow government planners to allocate the basic resources and then the market determines how privately owned resources are distributed.
What role does the government play?
In a command economy the government makes some or all of the economic decisions. In a communist country all of the economic decisions are made by the government. Unlike a socialist country where, only the government only makes decisions in the basic industries.