Command Economic Systems

Definition

A command economic system is a type of economic system where the government, rather than the free market, determines what goods and services should be produced, how they should be produced, and how they should be distributed. In this centralized system, the government makes all the major economic decisions and allocates resources according to its own priorities.

5 Must Know Facts For Your Next Test

1. Command economic systems are characterized by government ownership and control of the means of production, with little to no private property or market forces.
2. In a command economy, the government sets production quotas, determines prices, and allocates resources based on its own priorities, rather than responding to consumer demand.
3. Centralized planning is a key feature of command economies, where the government makes all major economic decisions and coordinates the production and distribution of goods and services.
4. Command economies often rely on state-owned enterprises to carry out the government's economic directives, with little to no private sector involvement.
5. Rationing is commonly used in command economies to distribute scarce resources, ensuring that essential goods and services are available to all citizens.

Review Questions

• Explain the role of the government in a command economic system.
  • In a command economic system, the government plays a dominant role in making all major economic decisions. The government determines what goods and services should be produced, how they should be produced, and how they should be distributed. The government owns and controls the means of production, sets production quotas, determines prices, and allocates resources based on its own priorities, rather than responding to consumer demand. This centralized planning and control is a defining feature of a command economy.
• Describe the key characteristics of a command economic system and how they differ from a market-based economy.
  • The key characteristics of a command economic system include: government ownership and control of the means of production, centralized planning and decision-making, little to no private property or market forces, and the use of state-owned enterprises and rationing to distribute resources. This stands in contrast to a market-based economy, where economic decisions are primarily driven by supply and demand, private property rights are respected, and the government plays a more limited role in directing economic activities. In a command economy, the government makes the major economic decisions, while in a market economy, these decisions are made by individual consumers and producers through the free market.
• Analyze the potential advantages and disadvantages of a command economic system compared to a market-based economy.
  • A potential advantage of a command economic system is the government's ability to quickly mobilize resources and direct economic activities towards its own priorities, such as national security or large-scale infrastructure projects. However, a major disadvantage is the lack of incentives for innovation and efficiency, as the government, rather than the free market, determines what is produced and how. This can lead to shortages, waste, and a lack of consumer choice. Additionally, the centralized decision-making in a command economy can be less responsive to changing consumer needs and preferences, and may result in a lower standard of living compared to a market-based economy. Ultimately, the tradeoffs between the government's control and the market's efficiency are a key consideration in evaluating the merits of a command economic system.

Related terms

Centralized Planning: The process by which a central authority, such as the government, makes decisions about the production and distribution of goods and services within an economy.

State-Owned Enterprises: Businesses that are owned and operated by the government, rather than private individuals or companies.

Rationing: The controlled distribution of scarce resources, goods, or services, usually by the government, to ensure fair and equal access.