Command Economy

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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.

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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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 >>
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