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.

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. Laissez Faire

    An economic theory from the 18th century that is strongly opposed ...
Related Articles
  1. Adam Smith is considered the founder of modern economics.
    Economics

    Adam Smith: The Father Of Economics

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

    4 Misconceptions About Free Markets

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

    The History Of Economic Thought

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

    The History Of Capitalism: From Feudalism To Wall Street

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

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  6. 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.
  7. Forex Education

    Free Market Maven: Milton Friedman

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

    What is the difference between monetary policy and fiscal policy?

    Examine some of the important and understated differences between how fiscal policy and monetary policy impact a nation's economy.
  9. There are many ways to rank the word's most powerful companies. Looking at market value, brand value or sales revenue are all methods used to rank the biggest companies in the world.
    Economics

    Most Powerful And Influential Public Companies In 3 Metrics

    There are many ways to rank the word's most powerful companies. Looking at market value, brand value or sales revenue are all methods used to rank the biggest companies in the world.
  10. A look at China's plan to control population growth and how it could change going forward.
    Economics

    China's One-Child Policy Explained

    A look at China's plan to control population growth and how it could change going forward.

You May Also Like

Hot Definitions
  1. Trust Fund

    A trust fund is a fund comprised of a variety of assets intended to provide benefits to an individual or organization. The ...
  2. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  3. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  4. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
  5. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  6. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
Trading Center