key term - Command Economic System

Definition

A command economic system is an economic structure where the government or central authority makes all decisions regarding the production and distribution of goods and services. In this system, resources are allocated according to a central plan, which contrasts sharply with market economies where supply and demand dictate outcomes. This type of system aims to achieve specific societal goals, often prioritizing equality over individual profit motives.

5 Must Know Facts For Your Next Test

1. In a command economic system, the government typically owns most or all means of production, which eliminates private property rights.
2. Central planning in this system can lead to inefficiencies, as the government may not respond quickly to changes in consumer preferences or market conditions.
3. Command economies often aim to reduce income inequality through redistribution of wealth and resources.
4. Historical examples of command economic systems include the former Soviet Union and Maoist China, where extensive state control over economic activity was implemented.
5. One major drawback of command economic systems is the lack of competition, which can stifle innovation and lead to shortages or surpluses of goods.

Review Questions

• How does a command economic system differ from a market economy in terms of resource allocation?
  • A command economic system allocates resources based on decisions made by a central authority, while a market economy relies on supply and demand to determine how resources are distributed. In command economies, the government decides what goods to produce and in what quantities, often leading to uniformity in products offered. Conversely, market economies allow producers to respond to consumer preferences, resulting in a diverse array of goods and services tailored to meet demand.
• Evaluate the strengths and weaknesses of a command economic system in achieving social equity compared to a mixed economy.
  • A command economic system can effectively promote social equity by redistributing wealth and ensuring that basic needs are met for all citizens. However, this approach may come at the cost of efficiency and innovation due to the absence of market competition. In contrast, a mixed economy balances social welfare with economic efficiency by incorporating both government intervention and market forces. This can lead to more responsive resource allocation while still addressing issues of inequality.
• Assess the long-term impacts of implementing a command economic system on a nation's development compared to other economic systems.
  • Implementing a command economic system can have significant long-term impacts on a nation's development. While it may initially achieve rapid industrialization or improved social equity, it often leads to structural inefficiencies and stagnation over time due to lack of competition and innovation. In contrast, nations with mixed or market economies tend to experience more sustainable growth by fostering entrepreneurial activity and adapting to consumer demands. The historical experiences of countries that transitioned from command economies demonstrate how difficult it can be to shift towards more market-oriented systems after prolonged central control.

Related terms

Central Planning:

The process by which a government makes economic decisions, including what to produce, how to produce it, and for whom it is produced.

Market Economy:

An economic system where decisions about production and consumption are guided by the interactions of citizens and businesses in the marketplace.

Mixed Economy:

An economic system that combines elements of both command and market economies, allowing for both government regulation and private enterprise.