Command Economy

A A A

DEFINITION

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

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 and production ...
  2. Communism

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

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

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

    A philosopher and economist famous for his ideas about capitalism and communism. ...
  6. Laissez Faire

    An economic theory from the 18th century that is strongly opposed to any government ...
  7. Free Enterprise

    An economic system where few restrictions are placed on business activities ...
  8. Factors Of Production

    An economic term to describe the inputs that are used in the production of goods ...
  9. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate that some of the ...
  10. Global Recession

    An extended period of economic decline around the world. The International Monetary ...
Related Articles
  1. Adam Smith: The Father Of Economics
    Economics

    Adam Smith: The Father Of Economics

  2. 4 Misconceptions About Free Markets
    Fundamental Analysis

    4 Misconceptions About Free Markets

  3. The History Of Economic Thought
    Economics

    The History Of Economic Thought

  4. The History Of Capitalism: From Feudalism ...
    Personal Finance

    The History Of Capitalism: From Feudalism ...

  5. A Practical Look At Microeconomics
    Economics

    A Practical Look At Microeconomics

  6. State-Run Economies: From Public To ...
    Personal Finance

    State-Run Economies: From Public To ...

  7. Free Market Maven: Milton Friedman
    Forex Education

    Free Market Maven: Milton Friedman

  8. The Taylor Rule: An Economic Model For ...
    Economics

    The Taylor Rule: An Economic Model For ...

  9. America The Youthful? Yes, On a Relative ...
    Investing

    America The Youthful? Yes, On a Relative ...

  10. Thoughts From The Frontline: Every Central ...
    Economics

    Thoughts From The Frontline: Every Central ...

comments powered by Disqus
Hot Definitions
  1. XW

    A symbol used to signify that a security is trading ex-warrant. XW is one of many alphabetic qualifiers that act as a shorthand to tell investors key information about a specific security in a stock quote. These qualifiers should not be confused with ticker symbols, some of which, like qualifiers, are just one or two letters.
  2. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  3. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  4. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  5. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  6. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
Trading Center