A command economy and a mixed economy are two different economic systems. One system is controlled by the government, while the other economic system is only partly run by the government.

Command Economy

A command economy, or planned economy, is an economic system where the government has control over the production and pricing of goods and services. The government decides which goods and services to produce, the production and distribution method, and the prices of goods and services. This economic system is unlike a free market economy. In a free market economic system, the economy is based on the powers of supply and demand with little or no government intervention.

Command economies often make too much of one product and not enough of another to meet demand because it is hard for one entity (i.e. the government) to realize the needs of everyone in the country. As a result, a shadow economy, or black economy, may develop to fulfill those needs. The black economy violates a country's rules and regulations because the economic activities take place illegally and participants avoid taxes. A shadow economy arises when governments make transactions illegal or by making a good or service unaffordable. This economy looks to get around government restrictions.

Examples of command economies today include Iran, Libya, Cuba and China.

Mixed Economy

A mixed economic system has features of both a command and a free market system. A mixed economy is partly controlled by the government and partly based on the forces of supply and demand. Generally, a mixed economic system involves a public sector and a private sector. Most of the main economies in the world are now mixed economies. There is limited government regulation in a mixed economy, while there is heavy government regulation and control in a command economy. 

For example, suppose company ABC, a toy manufacturer, is in a mixed economic system. The prices and production levels are subject to the discretion of company ABC and the law of supply and demand. However, company ABC has been using too many of the natural resources in the state where it is located. The government would intervene in this case because it goes against the good of the public. On the other hand, in a command economy, there is no company producing toys, the government would control the production and pricing of the toys.

(For related reading, see: Is the United States a Market Economy or a Mixed Economy?)

  1. What are the advantages and disadvantages of a command economy?

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  2. To what extent can a government intervene in a market economy?

    Find out at what point a market economy receives so much government intervention that it can no longer be considered a market ... Read Answer >>
  3. What goods and services do command economies produce?

    Learn about command economies, how they operate, how they handle surplus production and unemployment, and why they fail. Read Answer >>
  4. Is the United States a Market Economy or a Mixed Economy?

    The United States is a mixed economy, it combines elements of a true free market economy with governmental, economic controls. Read Answer >>
  5. What are some examples of free market economies?

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  6. How does capitalism work in a mixed economy?

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