Command Economy

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What is a 'Command Economy'

A command economy is 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.

BREAKING DOWN '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.

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    Learn about command economies, how they operate, who decides the production of goods and services, and what command economies ... Read Answer >>
  2. What's the difference between a market economy and a command economy?

    Set by supply and demand, a market economy operates through a price system; in a command economy, governments control the ... Read Answer >>
  3. What are the advantages and disadvantages of a command economy?

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