Command Economy Advantages And Disadvantages Pdf

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command economy advantages and disadvantages pdf

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There are three basic economic structures that exist for a society.

Command economy, also referred to as planned economy, is an economic system wherein a central authority controls the quantity of products to be produced as well as other economic activities of a nation, including the prices of commodities. This is the economic system followed by most communist societies like China, North Korea and Cuba. Although this has worked for these countries, there are overt setbacks to this kind of economic system.

A Mixed Economy exhibits characteristics of both market and planned economies, with private and state sectors providing direction. A mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety of government-sponsored aspects. A mail truck : Restrictions are sometimes placed on private mail systems by mixed economy governments. While there is not one single definition for a mixed economy, the definitions always involve a degree of private economic freedom mixed with a degree of government regulation of markets.

Command economy

Command economy , economic system in which the means of production are publicly owned and economic activity is controlled by a central authority that assigns quantitative production goals and allots raw materials to productive enterprises. In such a system, determining the proportion of total product used for investment rather than consumption becomes a centrally made political decision. After this decision has been made, the central planners work out the assortment of goods to be produced and the quotas for each enterprise. The only direct choice made by consumers, however, is among the commodities already produced. Prices are also set by the central planners, but they do not serve, as in a market economy , as signals to producers of goods to increase or decrease production. Instead, they are used mainly as instruments of the central planners in their efforts to reconcile the total demand for consumer goods with the supply available, allowing also for revenues to the state. The central authority in a command economy assigns production goals in terms of physical units and allocates physical quantities of raw materials to enterprises.

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Explain the Advantages & Disadvantages of Free Market Economies

In a planned economy, the factors of production are owned and managed by the government. Thus the Government decides what to produce, how much to produce and for whom to produce. We use cookies on our website. Some of them are essential for the operation of the site, while others help us to improve this site and the user experience tracking cookies. You can decide for yourself whether you want to allow cookies or not. Please note that if you reject them, you may not be able to use all the functionalities of the site. Toggle navigation.

A command economy is where a central government makes all economic decisions. Either the government or a collective owns the land and the means of production. You can identify a modern, centrally planned economy by the following five characteristics:. A command economy has a few advantages, although they come with a few important disadvantages as well. An entire society can be transformed to conform to the government's vision, from nationalizing companies to placing workers in new jobs after a governmental skill assessment. Rapid change can completely ignore society's needs, forcing the development of a black market and other coping strategies.

Revision Notes

A command or planned economy occurs when the government controls all major aspects of the economy and economic production. In a command economy, it is the government that decides what to produce, how to produce goods and how to distribute goods and services within the economy. Command economies were often associated with the political system of Communism. A command economy works in contrast to a free market economy. In a free market economy, goods and services are produced by private enterprise with distribution occurring according to market forces.

Most, if not all, countries around the world have their own economic system in place. This is very important to them, and without proper planning and development, they would suffer a lot of difficulties and instability. There are many types of economic systems, and one of them is command economy. For this type, it is mainly employed by communist countries, such as North Korea, Cuba and the former Soviet Union.

A free market economy promotes the production and sale of goods and services, with little to no control or involvement from any central government agency. Instead of government-enforced price controls, a free market economy allows the relationships between product supply and consumer demand to dictate prices. The lack of government control allows free market economies a wide range of freedoms, but these also come with some distinct drawbacks.


  1. Sabas M. 22.04.2021 at 06:46

    Private enterprise does not exist in a command economy. Command economy advantages include low levels of inequality and unemployment, and the common good replacing profit as the primary incentive of production. Command economy disadvantages include lack of competition and lack of efficiency.