Economic question?
What are the potential advantages and disadvantages of market and command economic systems?
Answer:
A market based economic system rewards innovation and risk. It encourages freedom of choice. It is very efficient because the decisions of buyers and sellers determines price and what will and what won't be produced. A command economy has its decisions determined thru central planning committees. They might find it a waste of the nations resource to produce something like bubble gum, rap music, etc. The government tries to make things more equal, but this takes away from productive motives and efforts. Why work harder than the other guy if you will get no more or less than the other guy? A command economy is more likely to have corruption and the old who you know vs. what you know rule applies. When I visited the former Soviet Union many years ago, I was shocked at how little people had under this type of system.
ADVANTAGES
Market Economies: they adjust naturally to shocks in the system. They will naturally provide low unemployment. This is the idea that the market will deal with any issue that comes up and government can be small.
Command Economies: they can focus on things that a free market would not normally produce ("public goods" such as national defense, or to deal with issues such as pollution or education). In addition, there is a focus on equality under a command economy - everyone (supposedly) has the same access to health care, education, etc. Finally, in a command economy the government may have the ability to act as a monopoly, which gives them considerable bargaining muscle when dealing with international firms such as drug companies.
DISADVANTAGES
Market Economy: There is a vast inequality among people - some will be rich, some will be poor. In a free market economy, the poor will make up the majority and there will be few benefits. There are some products that the free market will not produce because of lack of demand or the inability to make people pay for it (such as national defense).
Command Economy: The government does not always know what is best for the people. A command economy will take months or years to deal with changes in demand or supply, so the opportunity to react to something can come and go without a change. This results in shortages (and lineups) and surpluses of useless things being common. In addition, command economies tend to be politicized, so there may be a motive to keep unprofitable factories open, or to produce quantity instead of quality. There is very little choice available: you get brand A or you don't get it at all. Finally, with no private capital available, entrepreneurship is dead. Under a command economy there is usually only one way to do things, which leads to stagnation.
Which one is better? It's probably fair to say that neither works well on its own. There are no examples today or a pure command economy (even China, Vietnam and Cuba have elements of a market system) and no examples of a pure market economy (even the United States and Japan have huge government intervention in markets - regulations, taxes, and a social safety net all go against free market thinking). Most economies today are what is called a "Mixed Economy," taking some elements from a market economy (such as competition) and some elements from a command economy (such as government regulation).
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Answer:
A market based economic system rewards innovation and risk. It encourages freedom of choice. It is very efficient because the decisions of buyers and sellers determines price and what will and what won't be produced. A command economy has its decisions determined thru central planning committees. They might find it a waste of the nations resource to produce something like bubble gum, rap music, etc. The government tries to make things more equal, but this takes away from productive motives and efforts. Why work harder than the other guy if you will get no more or less than the other guy? A command economy is more likely to have corruption and the old who you know vs. what you know rule applies. When I visited the former Soviet Union many years ago, I was shocked at how little people had under this type of system.
ADVANTAGES
Market Economies: they adjust naturally to shocks in the system. They will naturally provide low unemployment. This is the idea that the market will deal with any issue that comes up and government can be small.
Command Economies: they can focus on things that a free market would not normally produce ("public goods" such as national defense, or to deal with issues such as pollution or education). In addition, there is a focus on equality under a command economy - everyone (supposedly) has the same access to health care, education, etc. Finally, in a command economy the government may have the ability to act as a monopoly, which gives them considerable bargaining muscle when dealing with international firms such as drug companies.
DISADVANTAGES
Market Economy: There is a vast inequality among people - some will be rich, some will be poor. In a free market economy, the poor will make up the majority and there will be few benefits. There are some products that the free market will not produce because of lack of demand or the inability to make people pay for it (such as national defense).
Command Economy: The government does not always know what is best for the people. A command economy will take months or years to deal with changes in demand or supply, so the opportunity to react to something can come and go without a change. This results in shortages (and lineups) and surpluses of useless things being common. In addition, command economies tend to be politicized, so there may be a motive to keep unprofitable factories open, or to produce quantity instead of quality. There is very little choice available: you get brand A or you don't get it at all. Finally, with no private capital available, entrepreneurship is dead. Under a command economy there is usually only one way to do things, which leads to stagnation.
Which one is better? It's probably fair to say that neither works well on its own. There are no examples today or a pure command economy (even China, Vietnam and Cuba have elements of a market system) and no examples of a pure market economy (even the United States and Japan have huge government intervention in markets - regulations, taxes, and a social safety net all go against free market thinking). Most economies today are what is called a "Mixed Economy," taking some elements from a market economy (such as competition) and some elements from a command economy (such as government regulation).
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