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    Command Economy - Advantages and Disadvantages

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    The document discusses the advantages and disadvantages of a command economy compared to a free market economy. It explains that in a command economy, the government controls production, distribution, wages, and jobs. The main advantages are lower inequality and unemployment, while focusing on the common good over profit. However, the lack of competition can inhibit innovation and efficiency. The government has no market pressures to cut costs or adapt to consumer demands.

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    Command Economy - Advantages and Disadvantages

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    selozok1
    310 views6 pages
    The document discusses the advantages and disadvantages of a command economy compared to a free market economy. It explains that in a command economy, the government controls production, distribution, wages, and jobs. The main advantages are lower inequality and unemployment, while focusing on the common good over profit. However, the lack of competition can inhibit innovation and efficiency. The government has no market pressures to cut costs or adapt to consumer demands.

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    Command Economy_ Advantages and Disadvantages

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    The document discusses the advantages and disadvantages of a command economy compared to a free market economy. It explains that in a command economy, the government controls production, distribution, wages, and jobs. The main advantages are lower inequality and unemployment, while focusing on the common good over profit. However, the lack of competition can inhibit innovation and efficiency. The government has no market pressures to cut costs or adapt to consumer demands.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    310 views6 pages

    Command Economy - Advantages and Disadvantages

    Uploaded by

    selozok1
    The document discusses the advantages and disadvantages of a command economy compared to a free market economy. It explains that in a command economy, the government controls production, distribution, wages, and jobs. The main advantages are lower inequality and unemployment, while focusing on the common good over profit. However, the lack of competition can inhibit innovation and efficiency. The government has no market pressures to cut costs or adapt to consumer demands.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    27/12/2019 Command Economy: Advantages and Disadvantages

    ECONOMY GOVERNMENT & POLICY

    Command Economy: Advantages and


    Disadvantages
    How a command economy compares to a free market economy

    By GREG DEPERSIO | Updated Jun 27, 2019

    A command economy is one in which a centralized government controls the means of


    production. This has has both advantages and disadvantages when compared to a free
    market economy.

    https://www.investopedia.com/ask/answers/032515/what-are-advantages-and-disadvantages-command-economy.asp 1/6
    27/12/2019 Command Economy: Advantages and Disadvantages

    An Overview
    In a command economy, the government determines what is produced, how it is produced,
    and how it is distributed. Private enterprise does not exist in a command economy. The
    government employs all workers and unilaterally determines their wages and job duties.

    There are benefits and drawbacks to command economy structures. Command economy
    advantages include low levels of inequality and unemployment, and the common good
    replacing profit as the primary incentive of production. Command economy disadvantages
    include lack of competition and lack of efficiency.

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    The Advantages of a Command Economy


    Less Inequality
    Because the government controls the means of production in a command economy, it
    determines who works where and for how much pay. This power structure contrasts sharply
    with a free market economy, in which private companies control the means of production
    and hire workers based on business needs, paying them wages set by invisible market forces.

    In a free market economy, the law of supply and demand dictates that workers who have
    unique skills in high-demand fields receive high wages for their services, while low-skill
    individuals in fields that are saturated with workers settle for meager wages, if they can find
    work at all.

    Low Unemployment Levels


    Unlike the invisible hand of the free market, which cannot be manipulated by a single
    company or individual, a command economy government can set wages and job openings
    to create the unemployment rate and wage distribution that it sees fit.

    Common Good Versus Profit Priority


    Whereas the motivation for profit drives most business decisions in a free market economy,
    it is a non-factor in a command economy. A command economy government, therefore, can
    tailor products and services to benefit the common good without regard to profits and
    losses. For example, most true command economy governments, such as Cuba, offer free,
    universal healthcare coverage to their citizens.

    The Disadvantages of a Command Economy


    Lack of Competition Inhibits Innovation
    Critics argue that the inherent lack of competition in command economies hinders
    innovation and keeps prices from resting at an optimal level for consumers. Although those
    who favor government control criticize private firms that esteem profit above all else, it is
    undeniable that profit is a motivator and drives innovation. At least partly for this reason,
    many advancements in medicine and technology have come from countries with free market
    economies, such as the United States and Japan.

    Inefficiency
    Efficiency is also compromised when the government acts as a monolith, controlling every
    aspect of a country's economy. The nature of competition forces private companies in a free
    market economy to minimize red tape and keep operating and administrative costs to a
    minimum. If they get too bogged down with these expenses, they earn lower profits or need
    to raise prices to meet expenses. Ultimately, they are driven out of the market by

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    competitors capable of operating more efficiently. Production in command economies is


    notoriously inefficient as the government feels no pressure from competitors or price-
    conscious consumers to cut costs or streamline operations. They also may be slower to
    respond – or even completely nonresponsive – to consumer needs or changing tastes.

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    https://www.investopedia.com/ask/answers/032515/what-are-advantages-and-disadvantages-command-economy.asp 4/6
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    Partner Links

    Related Terms
    Centrally Planned Economy
    A centrally planned economy is an economic system in which decisions are made by a central
    authority rather than by market participants. more

    Command Economy Definition


    A command economy is a system where the government determines production, investment, prices
    and incomes. more

    Capitalism Definition
    Capitalism is an economic system whereby monetary goods are owned by individuals or companies.
    The purest form of capitalism is free market or laissez-faire capitalism. Here, private individuals are
    unrestrained in determining where to invest, what to produce, and at which prices to exchange goods
    and services. more

    What Is Socialism?
    Socialism is an economic and political system based on public or collective ownership of the means of
    production, which emphasizes equality rather than achievement. more

    Why Comparative Advantage Matters


    Comparative advantage refers to an economy's ability to produce goods and services at a lower
    opportunity cost than trade partners. more

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    Multinational Corporation (MNC)


    A multinational corporation has its facilities and other assets in at least one country other than its
    home country. more

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