What is a Command Economy?
A command economy is a type of economic system where the government or central authority makes all decisions concerning the production and allocation of goods and services. In a command economy, prices, production, and distribution are controlled by the government rather than being determined by market forces.
Characteristics of a Command Economy
- Central Planning
- State Ownership of Resources
- Restricted Individual Freedom
- Low levels of innovation and competition
Examples of Command Economies
North Korea and Cuba are examples of countries with command economies where the government has absolute control over economic activities. In these countries, the government sets production quotas, determines prices, and decides how resources are allocated.
Case Study: Soviet Union
The Soviet Union operated under a command economy for much of its existence. The government controlled all aspects of economic activity, leading to inefficiencies, shortages, and a lack of consumer choice. The collapse of the Soviet Union in 1991 was partly attributed to the failings of its command economy.
Advantages and Disadvantages of a Command Economy
- Advantages: Central planning can lead to equitable distribution of resources and prioritize public welfare.
- Disadvantages: Lack of incentives for innovation, inefficiency due to government control, and limited consumer choice.
