Command Market

Question 1

What is a command economy ?

Answer 1

Occurs when 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. It was Karl Marx, in the Communist manifesto who argued for ‘common ownership of the means of production.’

Question 2

How economy works ?

Answer 2

Government ownership of the means of production. governments will own some or all of the industries producing goods and services.

• Government pricing and production decisions. production is decided by government agencies, who decide the most socially efficient goods to produce. Government agencies may also set prices or give consumers rations directly.
• Government macro-economic objectives. the government will have over-riding macroeconomic objectives such as employment rates and what to produce.

Question 3

Advantages

Answer 3

Supporters of command economies argue that it enables the government to overcome market failure, inequality and create a society that maximises social welfare rather than maximises profit.

• Command economies can prevent abuse of monopoly power.
• Command economies can prevent mass unemployment, often a feature of capitalist economies.
• Command economies could produce goods which benefit society and ensure everyone has access to basic necessities.

Question 4

Disadvantages

Answer 4

Unable to respond to consumer preferences.

• Inefficient firms are protected and kept going; making it hard for resources to move to dynamic and efficient firms.
• Threat to democracy and liberty. A command economy creates a very powerful government which limits individual’s rights to pursue economic objectives.