COMMAND ECONOMY

✘ Command Economy is also known as planned economy

✘ The government determines what goods should be produced, how much should be
produced and the price at which the goods are offered for sale.

✘ Central plans in the economy set prices, control production and limit or entirely prohibit
competition within the private sectors.

Command Economy as a planned economy

✘ Government is acting as the central planner; they are the authority who makes the
economic decisions. Whether it is on the terms of production, quotas, and distribution
levels or the setting prices.
✘ They have their central tenet that government’s central planners own or control the
means of production within a society.
✘ It doesn’t rely on the laws of supply and demand that operate in a market economy.
✘ Everything is dictated by the government.
✘ Central authority answers all economic decisions.
1. What to produce? (What kind of goods and services should be produced?)
2. How to produce? (What productive resources are used to produce goods and
services?)
3. For whom to produce? (Who gets to have the goods and services?)
✘ There is no competition, as the central government owns or controls all businesses.
✘ Private ownership or land, labor, and capital is nonexistent or sharply limited to use in
support of the central economic plan.
✘ No domestic competition

CHARACTERISTICS

 The government creates a central economic plan.

 The government allocates all resources according to central plan.

 The central plan sets the priorities for the production of all goods and services.

 The government owns monopoly businesses.

 The government creates laws, regulates, and directives to enforce the central plan.

Examples of the most well-known countries with command economies:

o Belarus

o China
 o Cuba

o Iran

o Libya

o North Korea

o Russia

ADVANTAGES OF A COMMAND ECONOMY:

1. Can manipulate large amounts of resources for large projects without lawsuits or
environmental regulatory issues.

2. An entire society can be transformed to conform the government’s vision, from

nationalizing companies to placing workers in new jobs after a governmental skills.

DISADVANTAGES OF A COMMAND ECONOMY:

1. Rapid change completely ignore society’s needs, forcing the development of a black
market and other coping strategies.

2. Goods production is not always matched to demand, and poor planning after leads to
rationing.

3. Innovation is discouraged and leaders are rewarded for following orders than taking
risks.