Command Economy/Planned Economy

A command economy is where supply and price are regulated by the government rather than market forces . Government decides which goods and services are produced and how they are distributed. The contrast economic system is the market economy.

Examples Of Command Economies

  • North Korea

  • Cuba

  • Russia

  • Libya

  • Iran

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Command Economy is based on a central planning. Every input, every output, every intermediate good, every worker, every resource is allocated based on a predetermined plan.

In a Command economy, the Market is not in effect. Without the Market, there is no consumer preference and resources will be mis-allocated; therefore there will either be a shortage or a surplus.


  • Creates an equal distribution of wealth

  • Stable

  • Government can act on problems quickly (Does not have to wait for market forces)


  • No incentive for innovation

  • Little freedom

  • Individuals have no control over goods

  • Misallocation of resources

  • Poor quality of prodcuts

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