Command Economies And Mixed Economies

Question 1

Characteristics of a Command Economy?

Answer 1

• Government owns and allocates resources deciding what, how and for whom to produce

• Government sets productions targets and growth rates according to its view of people’s wants

• Goods are allocated through rationing

• Workers are given job by the government

• Market prices do not inform resource allocation

• Queuing is used to ration scarce goods

Question 2

Advantages of a Command Economy?

Answer 2

• Resources are allocated by the government to maximise social welfare

• Relatively even distribution of income/wealth

• Workers are given jobs by the state; there is no unemployment

• Adequate provision of public goods

• Government should take externalities into account in decision-making

• Environmental protection possible

• Government can invest in economy’s infrastructure easily

• Policies to manage the macroeconomy

• Welfare safety net

• National interest considered rather than individual profits

Question 3

Disadvantages of a Command Economy?

Answer 3

• Danger of government failure

• Difficult for the government to set and correct output planning targets
and fix prices appropriately

• Government may not have enough information to make good decisions
eg malinvestment by state

• Very bureaucratic – lots of red tape which reduces efficiency

• Underemployment

• Lack of choice for consumers

• Lack of incentives to be innovative and entrepreneurial

• Lack of incentives to work hard, causing lower productivity

• Corruption is likely to develop

• Black market activity can flourish

Question 4

What is a Mixed Economy?

Answer 4

There is a mix of private and public (government) sectors

Resources are allocated by the price mechanism, when it works efficiently, but the government intervenes to correct market failures

Question 5

What is a Command Economy?

Answer 5

An economic system where the government determines what goods should be produced, how much should be produced, and the price at which the goods are

Question 6

What are Transition Economies?

Answer 6

Transition economies are in the process of moving from a command economy to a mixed/free market economy.

Markets are liberalised, state assets are privatised, state subsidies are removed.

This can cause some short-term problems such as inflation and unemployment

Question 7

What are Traditional Economies?

Answer 7

Traditional/subsistence economies are those characterised by family
groups, low productivity, little specialisation, barter trade and no surplus production for investment