Command Economy

AAA

DEFINITION of 'Command Economy'

A system where the government, rather than the free market, determines what goods should be produced, how much should be produced and the price at which the goods will be offered for sale. The command economy is a key feature of any communist society. China, Cuba, North Korea and the former Soviet Union are examples of countries that have command economies.

INVESTOPEDIA EXPLAINS 'Command Economy'

Also known as a planned economy, command economies are unable to efficiently allocate goods because of the knowledge problem - the central planner's inability to discern how much of a good should be produced. Shortages and surpluses are a common consequence of command economies. A free-market price system, on the other hand, signals to producers what they should be creating and in what quantities, resulting in a much more efficient allocation of goods.

VIDEO

Loading the player...
RELATED TERMS
  1. Capitalism

    A system of economics based on the private ownership of capital ...
  2. Communism

    A political and economic ideology based on communal ownership ...
  3. Socialism

    An economic and political system based on public or collective ...
  4. Marxism

    A social, political and economic philosophy that examines the ...
  5. Karl Marx

    A philosopher and economist famous for his ideas about capitalism ...
  6. Free Enterprise

    An economic system where few restrictions are placed on business ...
RELATED FAQS
  1. What goods and services do command economies produce?

    A command economy is an economic system in which the government, or the central planner, determines what goods and services ... Read Full Answer >>
  2. What are some examples of free market economies?

    According to a 2007 study, the most economically free countries in the world are Hong Kong, Singapore, Australia and the ... Read Full Answer >>
  3. What is the difference between a command economy and a shadow economy?

    A command economy and a shadow economy are two very different economic systems. One system is controlled by the government, ... Read Full Answer >>
  4. What makes command economies fail?

    Command economies took most of the blame for the economic collapse of the Soviet Union and North Korea. The lesson taken ... Read Full Answer >>
  5. What is the difference between a command economy and a mixed economy?

    A command economy and a mixed economy are two different economic systems. One system is controlled by the government, while ... Read Full Answer >>
  6. What are the advantages and disadvantages of a command economy?

    A command economy is one in which a centralized government controls the means of production. The government determines what ... Read Full Answer >>
Related Articles
  1. Economics

    What's a Command Economy?

    A command economy is one where the government controls the economy, acting as the central planner, dictating production quotas and distribution levels, and setting prices. Such economies exist ...
  2. Economics

    Adam Smith: The Father Of Economics

    This free thinker promoted free trade at a time when governments controlled most commercial interests.
  3. Fundamental Analysis

    4 Misconceptions About Free Markets

    These fallacies have hounded free market economists since the days of Adam Smith.
  4. Economics

    The History Of Economic Thought

    Economics is a vital part of every day life. Discover the major players who shaped its development.
  5. Personal Finance

    The History Of Capitalism: From Feudalism To Wall Street

    Find out how the economic system we now use was created.
  6. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  7. Personal Finance

    State-Run Economies: From Public To Private

    Find out how former Iron Curtain countries used private enterprise to join the world financial markets.
  8. Forex Education

    Free Market Maven: Milton Friedman

    As proponent of free market capitalism, this economist changed the way the world's economies operate.
  9. Economics

    How The GDP Of The US Is Calculated

    The US GDP may not be a perfect economic measure, but the ability to compare it to prior periods and other countries makes it the most applicable.
  10. Economics

    How China's GDP Is Calculated

    China is the world’s second-largest economy based on its GDP figures. Investopedia explains the methodology behind China’s GDP calculation.

You May Also Like

Hot Definitions
  1. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  2. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  3. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  4. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  5. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
Trading Center