Command economies

Definition

A command economy is an economic system where the government makes all decisions regarding the production and distribution of goods and services. This type of economy is typically associated with socialist and communist ideologies, where state planning replaces market forces. In a command economy, the government controls resources and implements policies to achieve specific social or economic goals, often prioritizing equality over individual profit.

5 Must Know Facts For Your Next Test

1. Command economies are characterized by a lack of private property, with all resources owned and controlled by the state.
2. These economies often aim to eliminate inequalities found in capitalist systems by redistributing wealth and providing basic needs for all citizens.
3. In command economies, consumer choice is usually limited because the government decides what products are available based on its assessment of needs rather than market demand.
4. Historical examples of command economies include the Soviet Union and Maoist China, where government control over the economy led to various social and economic challenges.
5. Command economies can lead to inefficiencies as they may struggle to adapt quickly to changing consumer preferences due to their rigid planning structures.

Review Questions

• Compare and contrast command economies with market economies regarding their methods of resource allocation.
  • In command economies, resource allocation is determined by government planning and decisions, focusing on achieving social equity and fulfilling collective goals. In contrast, market economies rely on supply and demand principles where individual choices drive resource allocation. This fundamental difference can lead to varying outcomes in efficiency, innovation, and consumer satisfaction, with command economies often struggling with responsiveness compared to the dynamic nature of market economies.
• Evaluate the impact of a command economy on individual freedoms and economic productivity.
  • A command economy tends to limit individual freedoms by restricting private property rights and personal business initiatives. The government’s control over economic activities often results in reduced incentives for innovation and entrepreneurship. Consequently, while a command economy aims for equality and provision of basic needs, it can negatively impact overall economic productivity due to its centralized control and potential inefficiencies in meeting consumer demands.
• Assess the long-term viability of command economies in achieving their stated goals compared to alternative economic systems.
  • While command economies aim to achieve social equity and meet basic needs for all citizens, their long-term viability is often challenged by inefficiencies, lack of innovation, and inability to adapt to changing economic conditions. Alternative economic systems, particularly those incorporating market elements, tend to foster competition and innovation that can drive economic growth. As seen in historical contexts such as the Soviet Union's collapse, rigid command structures can struggle to sustain themselves without adapting to more flexible economic practices.

Related terms

Planned economy: An economic system where the government controls and regulates all aspects of the economy, including production, investment, prices, and incomes.

Socialism: A political and economic theory advocating for collective or governmental ownership and administration of the means of production and distribution of goods.

Centralized planning: The process by which the government decides what to produce, how to produce it, and who gets the products in a command economy.