Command Economic System Flashcards, test questions and answers

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What is Command Economic System?

A command economic system, also known as a centrally planned economy, is an economic system in which the government controls all major aspects of production and distribution. This includes the manufacturing of goods and services, the prices at which they are sold, and how those goods and services are allocated within society. Command economies were common in many communist countries during the 20th century. The goal of a command economy is to increase national productivity by making sure that resources are used efficiently and distributed equitably. The government sets production goals for businesses based on what it believes will be beneficial for society as a whole. Factors such as wages, prices, taxes, investments, foreign trade policies and other regulations are also controlled by the government in order to reach these goals. Critics argue that command economies are inefficient because they lack competition between businesses which can lead to lower quality products or services. Additionally, since decisions about production goals are made by central planners rather than market forces reflecting consumer demand, it can be difficult for planners to accurately assess what people actually need or want. They may also not have access to accurate pricing information which can lead to misallocation of resources or wasted resources due to over-investment in certain areas while neglecting others. In recent years some countries have moved away from a fully planned economy towards more market-based approaches while still maintaining some degree of government control over key aspects of their economy such as interest rates or foreign exchange rates. These hybrid systems combine elements from both command economies and traditional free markets but may still suffer from some of the same drawbacks mentioned above if not properly managed and monitored closely by authorities.