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

external image wwcommand.gif

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.

Advantages

  • Creates an equal distribution of wealth

  • Stable

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

Disadvantages

  • No incentive for innovation

  • Little freedom

  • Individuals have no control over goods

  • Misallocation of resources

  • Poor quality of prodcuts






Economics in the News

http://news.bbc.co.uk/2/hi/country_profiles/1131421.stm




Reference

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=command+economy
http://socyberty.com/economics/the-advantages-and-disadvantages-of-traditional-command-and-market-economies/