Question

macro economics 17

17. Briefly, but thoroughly compare and contrast Command and Market systems. What do Market systems have that Command systems don't? (7 pts) Command systems are where the government has full control over all economic activity whereas market systems has some mixture of centralized overnment remulation and decentralized markets and prices In

Answer 1

Command economy is the one where the government owns the factors of production , raw materials and resources and decide on the quantities and prices of goods and services.

It is a planned economy where all the planning lies in the hands of the government and only it can decide the supply and demand of goods and services including all the other decisions related to market economy.

On the other hand, market economy is the one where the market functions independently without the intervention of the government and the supply and demand of the goods and services determine the prices in the market. The consumers according to their tastes, income levels and prices determine the quantity they demand and the suppliers based on the profits and costs determine the supply of goods , both of which help reach the equilibrium.

In the command market, most of the problems are solved by the central authority ie the government and hence it is an important part of the economy while in the market one, it is usually the suppliers and demanders that solve the shortage or surplus ie the market forces solve and bring it to equilibrium.

Factors like unemployment and inequality are less seen in the command economy ie the government would also work for the welfare of the economy whereas in market economy , these would be persist and also there would be only profit motive that would exist in this economy.

Market economies have innovations and ideas and the freedom to supply and demand the goods and services the way they want. This aspect of freedom is lacking in the command economy where everything works according to the commands of the government. This command system might limit the way the economy functions to only the way the government wants.