0115 966 7955 Today's Opening Times 10:00 - 20:00 (BST)

Strengths and Weaknesses of the command economics system

Published: Last Edited:

Disclaimer: This essay has been submitted by a student. This is not an example of the work written by our professional essay writers. You can view samples of our professional work here.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

The basic economic questions arise because of the basic economic problems of resource scarcity.

What to Produce

We are confronting the problem of resource allocation when the question of what to produce emerges. Since our wants are huge and the resources to satisfy them are limited, we have to set our priorities and when we do that, we are deciding on what to produce. For example

In the Command economy, the state is said to be the ones that own resources and the central authority of the state controls and direct the resources, it is through the estimates of the wants and needs of the people that this is achieved. But in the free Market economy, the ownership and control of resources is granted to private individuals. Price mechanism and the market forces of demand and supply and the free consumer choices and producers would determine allocation of resources or what to produce or how it is allocated.

How to produce

When this question is asked, the technology method of production applied on what to produce is being referred to. Capital intensive and Labour intensive methods are all forms of methods of technology, but whichever method is used, the cost per unit of output should really be considered

Whom to produce

This is a problem of distribution, in other words how will the goods produced be distributed. This depends on the needs of the society and the personal income distribution. Goods need s to be taken to where they can be consumed or utilised in other for the completion of production process.

Economic systems are therefore created on the basis of determining the resources of allocation. It is a system were all the institutional means through which national resources are used to satisfy human wants and needs

These are the types of an economic system

Free Market economic system

Mixed Economic System

Command Economy

Free Market Economy

This is an Economic system that allows for the right of private firms, institutions or individuals to own and control resources and also granted rights to contend for economic benefits. It is also where production and distribution of resources happens based on the free market mechanism by a free price system

The characteristics of free market economy

Price mechanism is in place

There is little or no interference from the government

Freedom of entry and exit

The question on what, how and for whom to produce are answered by the private sector

Price mechanism: Demand and supply determines prices

Freedom in profit making

USA, Mexico, Canada and Somalia are good examples of countries with a free market economic system.

Mixed economy

This is includes a variety of government and private control, in other words, a mix of socialism and capitalism. As stated by business dictionary, all modern economies are mixed where means of production are shared between the private and public sectors. It is also called dual economy.

Features of Mixed Economy

Individual Freedom

Economic Efficiency

An efficient and adequate allocation of resources

Incentives to innovate provided by competition

The government ensures the maintenance of employment standards

Centralised economic planning

Command Economy/Planned:

In a command system, decision making is centralized in other words the government controls all decisions with regards to the allocation of resources. They decide on what to produce, the proportion of what should consists of capital goods, the proportion of resources to be devoted for consumers etc. In command economy decision making is a centralised Process.

The strength and weakness of the Command Economy

Strength:-

Increases the constant usage of resources.

Allocates wealth among the people equally to avoid any problem of unfairness.

Only products that are required are produced hence prevents production of socially undesired products.

The government will ensure a more equal distribution of income and wealth

Essential goods/services will be provided to the community. For e.g.  Education.

The government can determine which goods are produced. It has the power of decision making.

It provides a minimum standard of living for all citizens.

Weakness:-

Freedom of choice is restricted

Cannot detect consumer preferences accurately.

Resources are misallocated as consumer demands are not satisfied by production.

Resources are not fully utilized, since production is based on home consumption

No specialization and division of labour

Lack of efficiency.

There is little consumer choice. Since everything is allocated according to a planning process, consumers will have little say in what is provided directly by the state.

Little variety of goods and services

There is no price mechanism, i.e. interaction of demand and supply in determining prices of goods

Subsidies on essential goods and services quickly lead to shortages. Therefore queuing is common in command economies.                                          

The Difference between The Command Economy and other Types of Economic Systems

Command Economy

Market Economy

Capitalism

Command economies have public enterprises where the government controls things including businesses and production.

A mixed economy is an economy that includes a variety of private and government control

capitalism involves private enterprises where businesses are owned by private individuals

free market system is where prices/consumption/production are driven freely

It is driven by demand and supply

It is driven by demand and supply

Distributes wealth in one single method

dwells more on the exchange of wealth in various methods

capitalism refers more to the production of wealth

This is predictable and orderly but creates much inefficiency

There is free competition without interference

There is no free competition, capital owners can at times influence the terms of trade

the government also intervenes to ensure safety

An 'invisible-hand' regulates the economy.

A command economy is where everything is planned by some central planners

Conclusion

The three selected types of economic systems are the basic branches and of them all the command economy is highlighted as it is an economy where price and supply are not regulated by forces of the market but it is regulated by the government, they decide what goods and services are produced and the distribution method. At present day, there is rarely any country practicing command economy, the remaining countries using command economy are Cuba and North Korea


To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Request Removal

If you are the original writer of this essay and no longer wish to have the essay published on the UK Essays website then please click on the link below to request removal:


More from UK Essays

We can help with your essay
Find out more