Question

Assume you live in a country with a command economy. In a paragraph of 125 words, describe how this economic system might affect your life.

Answer 1

Answer:

A command economy is a system where the government, rather than the free market, determines what goods should be produced, how much should be produced, and the price at which the goods are offered for sale. It also determines investments and incomes.

KEY TAKEAWAYS

• A command economy is when government central planners own or control the means of production, and determine the distribution of output.
• Command economies suffer from problems with poor incentives for planners, managers, and workers in state-owned enterprises.
• Central planners in a command economy are unable to rationally determine the methods, quantities, proportions, location, and timing of economic activity across an economy without private property or the operation of supply and demand.
• Proponents of command economies argue that they are better for achieving fair distribution and social welfare over private profit.

Command Economy

Understanding Command Economy

The command economy is a key feature of any communist society. Cuba, North Korea, and the former Soviet Union are examples of countries that have command economies, while China maintained a command economy for decades before transitioning to a mixed economy that features both communistic and capitalistic elements.

Also known as a planned economy, command economies have as their central tenet that government central planners own or control the means of production within a society. Private ownership or land, labor, and capital is either nonexistent or sharply limited to use in support of the central economic plan. In contrast with free market economies, in which the prices of goods and services are set by supply and demand, central plans in a command economy set prices, control production, and limit or entirely prohibit competition within the private sector. In a pure command economy, there is no competition, as the central government owns or controls all business.