A Command Economic System Is Characterized By?

A Command Economic System Is Characterized By?

A Command Economic System Is Characterized By?

A command economic system is characterized by a government that controls industries rather than allowing them to function in a free market. Examples of such systems include the Soviet Union, Cuba, and North Korea, until they broke up in 1991.

The government plans and organizes all economic activity to maximize social welfare in a command economy. However, it has several drawbacks, including inefficiencies and a lack of competition.

The Government Sets A Central Plan.

The government sets a central plan for an economy, which determines what goods and services are produced and how they are distributed. The government has the power to create and implement a central plan because it has more resources than private businesses or individuals.

The plan usually focuses on economic development goals in the public’s best interest, such as providing jobs and improving social welfare. However, it also aims to distribute wealth fairly between the country’s people.

Many governments also use central planning in times of war and national emergencies. This is a way for the government to control the flow of resources and ensure enough supplies for everyone.

While a command economy may seem theoretically attractive, it can have numerous disadvantages. It can lead to inefficiency because of the lack of competitive pressure. It can also reduce the amount of money in the economy because it limits the ability of companies to expand their operations and earn profits.

It also can negatively affect the environment by limiting the use of fossil fuels and reducing emissions. For example, a centralized plan might direct companies to only produce energy projects with zero emissions or switch electrical generation methods to renewable ones.

A central plan also has the effect of depressing the amount of money in the economy by lowering the amount of cash that can be deposited in banks or transferred to consumers. This can make the economy less profitable and encourage private agents to alter their long-term strategies to avoid losing cash.

However, it can also increase the economy by creating new businesses and employment opportunities. Often, the government can target unemployment levels below what would be expected in a market economy.

The government does not want many unemployed workers in the economy, so it often sets a low unemployment goal in its central plan. This target can be as high or lower than expected in a market economy, depending on the government’s priorities.

The Government Owns Monopoly Businesses.

A command economic system is characterized by government ownership of resources and businesses. This differs from a free market economy, where private companies set production and price levels in response to market demand.

In a command economy, prices and production levels are set by central planners who determine the national economic priorities. This often involves a multi-year plan.

There are several ways the government can own monopoly businesses. Still, the most common is by granting patents and copyrights to companies. These protect a firm from other competitors and give them the exclusive right to produce a particular product.

The government can also create monopolies by restricting the availability of certain goods and services. These may include utilities, financial services, or transportation companies.

Monopolies can benefit the economy by allowing companies to invest safely in new technologies without worrying about competitors. These firms also enjoy economies of scale because they can produce large quantities of a product at a lower cost than competing companies can.

However, monopolies can also harm the economy because they lead to low-quality products and cost-push inflation. They can also hinder innovation and discourage investment in research and development.

Another example of a monopoly is the monopoly on electricity in the United States. The government owns the power plants and the grid, which controls how electricity is distributed and sold to consumers.

There are also monopolies on water and air. These are essential services that must be supplied to the public. The government owns and regulates them to charge reasonable rates to consumers.

The government owns monopoly businesses because they are important for the country’s economy. They can provide essential goods and services like railways or energy supply. They can also be used to generate tax revenue and increase economic growth.

The Government Directs Labor.

The government controlling labor allocation, production rates, and prices characterize a command economic system. It is also known as a planned economy.

The government directs labor where it sees fit, using a central plan that sets goals and policies for the country. It also determines what products and services are produced, how they are produced, and for whom they are produced.

As a result, command economies usually have low unemployment rates. They also aim to redistribute wealth and create an equal society.

However, command economies have their drawbacks. First, they are difficult to manage and may lead to inefficiencies and shortages. In addition, they can cause a decline in productivity and innovation.

Second, they are prone to corruption and graft. This is because those in power often have more money than the average citizen and use it to benefit themselves.

Third, command economies have led to income inequality and resentment in some communities. This leads to a lack of trust among the population and can cause violence and riots.

Fourth, command economies are prone to a lack of information. Central planners do not have the necessary information about changing consumer preferences and market dynamics. This can lead to faulty economic decision-making, shortages, and a lack of growth in some countries.

Finally, command economies are prone to the development of the shadow economy and black market. This is because a command economy does not encourage competition and innovation.

This leads to a decrease in the quality of goods and persistent shortages. Additionally, command economies often have high child poverty rates and poor housing.

Historically, communist countries such as North Korea and Cuba have prioritized command economies. Still, Russia and China have recently steered their economy toward a mixed economy. This mix of socialism and capitalism has been a common trend in recent decades.

The Government Sets Prices.

The government sets prices for almost all goods and services in a command economic system. This ensures that all citizens can afford what they need and that the economy works efficiently.

However, in some cases, command economies can lead to inefficiencies in the system because they don’t let market forces determine to price. These inefficiencies may result in shortages and low-quality products in the economy.

The government’s role in setting prices is important because it can help to prevent the abuse of monopoly power. It can also help ensure everyone can access common goods like food and water.

A command economy is also called a “planned economy.” It can be used by governments who want to maximize the welfare of their population. While this type of economy does have advantages, it can also lead to problems with unemployment and poverty.

Another disadvantage of command economies is that they don’t provide enough competition for businesses. This can make it difficult for businesses to improve efficiency and reduce costs.

Moreover, in a command economy, prices don’t convey critical information about supply and demand. This means that businesses have less incentive to produce the goods and services they need because they don’t know what price they should set.

Additionally, the government can create maximum prices to prevent goods and services from going above a certain price level. This can help prevent people from buying expensive items and renting out homes they don’t need.

In some cases, command economies can be a source of corruption. This can cause economic chaos and lead to social instability.

A command economy can also be a source of poverty and lack of education. People cannot choose occupations and move around in the economy.

A command economy is a major feature of communist countries like North Korea and Cuba. It is also a key feature of socialist countries, such as Venezuela. But these countries have tried to steer their economies away from pure communism and toward a mix of capitalism and socialism.

A Command Economic System Is Characterized By? Long Best Guide

A command economic system, also known as a planned economy, is a type of economic system in which the government or a central authority directly controls and manages the production, distribution, and allocation of resources. In this system, prices and production levels are set by the government rather than by the free market.

The command economy has been debated for many years. It has been implemented in various forms in several countries throughout history. In this guide, we will explore the characteristics of a command economy, how it operates, and some of its advantages and disadvantages.

Characteristics Of A Command Economic SystemCharacteristics Of A Command Economic System

Government Ownership and Control of Resources

The government controls most resources in a command economy, including land, labor, and capital. This means the government decides how these resources are allocated, distributed, and used to produce goods and services. The government may also own and operate the means of production, such as factories, mines, and other key industries.

Centralized Planning

A command economy is based on a centralized planning system in which the government sets production targets and determines allocating resources to meet those targets. This involves creating detailed plans for producing goods and services, setting prices for these products, and determining how they will be distributed.

Lack of Market Forces

In a command economy, prices and production levels are determined by the government rather than by the free market’s forces of supply and demand. This means there is no competition among producers or mechanism for setting prices based on supply and demand.

Limited Individual Freedom

Individuals in a command economy have limited freedom to make economic decisions. The government sets the rules for economic activity, and individuals must follow these rules. As a result, there is little room for entrepreneurship or innovation, and individuals may not be free to start their businesses or pursue their economic interests.

Social Goals

A command economy is often driven by social goals, such as the desire to achieve social equity or to provide universal access to basic goods and services. The government may use its economic control to promote these goals, including redistributing wealth, providing subsidies to certain industries, or regulating prices.

Advantages Of A Command Economic System

Social Equity

One of the primary advantages of a command economy is that it can be used to promote social equity. By controlling the distribution of resources and setting prices for goods and services, the government can ensure that basic needs are met for everyone in society, regardless of income or social status.

Rapid Development

A command economy can also be used to rapidly develop key industries or areas of the economy. The government can allocate resources and set production targets to promote growth in certain industries, leading to rapid development and economic growth.


In a command economy, the government has a high degree of control over economic activity, which can help to promote stability and reduce the risk of economic crises or market fluctuations.

Disadvantages Of A Command Economic System

Lack of Efficiency

One of the primary disadvantages of a command economy is that it can be less efficient than a free market system. Without competition among producers or market forces to guide economic activity, the government may make inefficient decisions about the allocation of resources, which can lead to waste and inefficiency.

Lack of Innovation

A command economy can also stifle innovation and entrepreneurship. Without the freedom to pursue their economic interests, individuals may not have the incentive to create new products or services, which can limit economic growth and development.


What are the characteristic of a command economy?

What traits distinguish a command economy? A command economy typically consists of the following components: A command economy must have a central economic strategy, government ownership of the means of production, and (presumed) social equality.

What are the four characteristics of a command economic system?

In a command economy, the government has complete authority over the economy it oversees. The government regulates wages and prices, there are few property rights, important companies and industries are owned by the government, and there are active black markets.

What is a command economic system?

An economic system known as a command economy is one in which the means of production are owned by the government and economic activity is governed by a central organisation that sets quantitative production targets and distributes raw materials to productive businesses.

What is a command economy Mcq?

Under a command economy, all economic decisions are made at the federal level. In a capitalist economy, private individuals make decisions based on the desire for profit.

Which of the following is most characteristic of a command economy?

What defines a command economy as its main feature? Government control is the main characteristic of a pure command economy. The government establishes economic goals and regulates production and pricing rather than letting market forces determine the production of products and services.

What are the 5 characteristics of economic system?

The Foundation defines inclusive economies by five interrelated characteristics: participation, equity, growth, sustainability, and stability. This definition is based on extensive input from professionals, academics, peers, and the general public.