vvivireal

Difference Between Market Economy and Command Economy

Susan Kelly

Aug 22, 2022

The most important distinctions are who controls production inputs and the methods that establish pricing. The actions that take place in a market economy are not predetermined. It is more determined by the supply and demand of products and services rather than being structured by any central authority. Subsidies and welfare programs are two examples of the other aspects of a command economy in the United States. Examples of market economies include the ones found in the United States of America, England, and Japan.

On the other hand, a command economy is structured by a centralized government that controls the majority of enterprises, if not all of them, and in which government officials direct all of the production factors. Examples of command economies include the communist states of East Germany, North Korea, and the former Soviet Union. To varying degrees, all economies include elements of both market economics and command economics.

Market Economy

Market economies are also known as free market economies. The concept of capitalism is inextricably linked to the concept of market economies. Individuals and enterprises are the owners of the resources and are free to engage in commercial transactions and agreements with one another without the authorization of government authorities. The word "market" refers to the whole system of uncoordinated trades.

Adam Smith was the first economist to investigate the functioning of the market. He likened it to an "invisible hand" that distributed resources to the general populace. The desires of consumers and the availability of scarce resources are the primary factors that decide which items are produced and in what amount. In a free market economy, prices serve as signals for both producers and consumers, who then utilize these price signals as a guide for making choices. Through taxation and regulation, governments have a very limited impact on the overall course of economic activity.

German Economist

In a market economy, there is minimal control over enterprises, and customers should watch out for their best interests and protect themselves from being scammed or taken advantage of. It is not the responsibility of market economies to ensure that less fortunate individuals have access to the vital commodities and services or opportunities available. German economist Karl Marx believed that a market economy was fundamentally unequal and unfair because money and power would concentrate in the hands of the owners of capital. Marx is largely responsible for popularising the word capitalism.

John Maynard Keynes, an English economist, believed that economies based only on market forces could not properly adapt to large recessions. Instead, he advocated for significant involvement on the part of the government to manage economic cycles. Following the political upheavals of 1989, many economies that had previously been run by command switched to a free market system.

Command Economy

Government officials choose when, where, and how much is produced. A planned economy is another term that may be used to refer to this scenario. The former Soviet Union, which a communist government ran, is often considered the most illustrious example of a command economy. A market economy is characterized by the fact that many enterprises have been privatized and thus no longer function under the government's jurisdiction.

Because prices in a command economy cannot arise organically as they do in a market economy, government officials must determine prices in a command economy. In a command economy, resource allocation is determined by macroeconomic and political concerns. In contrast, in a market economy, resource allocation is determined by the profits and losses of people and enterprises. A command economy is the opposite of a market economy. Providing fundamental requirements and opportunities for all participants is the primary focus of command economies. Through taxation and regulation, governments have a very limited impact on the overall course of economic activity. This would result in severe shortages as well as large surpluses.

Special Considerations

The majority of market economies and command economies in the modern world work with aspects of both market and command economies. Cuba, for instance, has a long history of operating under a command economy but has recently implemented considerable market reforms to improve the country's state. A market economy is characterized by the fact that many enterprises have been privatized and thus no longer function under the government's jurisdiction.

On the other hand, the United States, which normally operates under a market economy, adopted a planned economy to better utilize its resources during World War II. Through taxation and regulation, governments have a very limited impact on the overall course of economic activity. Subsidies and welfare programs are two examples of the other aspects of a command economy in the United States.


Special for You

Privacy Policy | Terms of Use

Copyright 2019 - 2023

Contact us at : [email protected]