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The difference between a command economy and a market economy

What is a market economy

A market economy is one of the economic systems in which economic decision-making is made by individual firms or private sectors on many factors involving goods . The law of economic supply and demand plays a vital role in making economic decisions.

The seller and the buyer will decide the price of the goods and sometimes negotiation also takes place, in this system they sell the goods at the maximum price which is the highest reasonable price to make the consumers buy the goods. 

Market economy works on the theory of supply and demand, here land, capital, goods and labor are owned by individuals or companies, given consumer preference goods and services will be provided, and when demand is high, market economy produces goods at the maximum price that consumers can buy and generate more profits. 

Advantages of a market economy

Most of the property or goods and services are owned, and they can decide on the buying and selling price while keeping profit as their priority, they have complete freedom to sell, buy or produce in the market.

Focuses more on consumer preferences. If goods are produced according to consumer preferences, then goods can be priced at the maximum price consumers can buy. Market economy gives more importance and rewards to efficient producers because they produce goods and services and earn profit.

Disadvantages of a market economy

  1. In a market economy, where individuals or companies own property or goods and services, the pricing of goods may be very high while keeping profit as their priority.
  2. The production of goods and services according to consumer preferences is competition, they may think about future aspects and may also engage in unhealthy work, and may lead to unemployment and layoffs.
  3. A market economy is the economic system that places greater emphasis on technology and consumer demand.

Examples of a market economy

  1. Singapore
  2. Hong Kong
  3. New Zealand 
  4. Switzerland
  5. Australia
  6. United State 

What is a command economy?

A command economy is another economic system where the decision rests with the government of the nation, the law of supply and demand does not play any role in this system.

In the system of command economy there is the participation of the political system also, the decision to mass produce products without regard to consumer preference, here the goods and services they produce can be outdated and the government will decide the price keeping in mind that everyone can buy them in the country.

A command economy focuses more on macroeconomics and social goals than making a profit, and controls the price. Compared to a market economy, it gives less incentives to its efficient producers. The profit will be made by the government.

Advantages of a command economy

  1. A command economy avoids inequality by controlling price and gives importance to social welfare than profit making.
  2.  Avoids or minimizes unhealthy business practices
  3. It prevents mass layoffs or unemployment.
  4.  It also helps government companies overcome market failure.
  5. In a command economy, production operates according to a plan established by the government.
  6.  Make the most of the national capital and natural resources.
  7.  Take advantage of each individual's skill.
  8. The main objective is to produce the basic requirements of the people in the country.

Disadvantages of a command economy 

  1. In a command economy, government firms will have less information about the goods and services that consumers want.
  2. Here they do not give consideration to consumer preferences or wants
  3. There will be no encouragement for the ideas or ideas of individuals
  4. It works according to the plan of the government.
  5. In a command economy, the government has decision-making power and controls monopoly power.

Examples of command economy

  • Cuba

Founded in 1965, the Cuban Communist Party rules the nation. Industry is centrally owned and state-run with a central economic plan.

  • North Korea

North Korea is perhaps one of the most prominent examples of a command economy. It is highly restrictive and controls the economy with a steel fist. The propaganda is just as strong with the central powers claiming to have won the FIFA World Cup.

  • China

China is run by the Chinese Communist Party under President Xi, and while it is not as strict as a traditional communist country, it still operates under strict central oversight and regulation. Foreign companies can only invest if they meet the strict requirements, while retaining control of most of the industry.

  • USSR

The Soviet Union was the gold standard of command economy in the twentieth century, it made 5-year economic plans and diverted resources across the country, the lack of choice was notorious within its society.

Characteristics of a command economy

  • central economic plan

When a country's economy is planned centrally, it naturally needs a central economic plan, so we think of the five-year economic plans of the Soviet Union, which began under Joseph Stalin in 1928.

The goal is to set goals for industry such as increasing coal production and agriculture, and then allocate resources to do so. In fact, the Soviet Union was successful in some aspects of its economic plan as it became a leader in industry.

  • The government allocates resources

A command economy has a central plan and that plan is implemented through resource allocation, meaning that the government directs work where it sees fit, eg someone working in Moscow might need to move to Anadyr in Russia's far east.

  • monopoly

In a command economy, the government monopolizes every industry, meaning that banking, manufacturing, utilities, and transportation are all centrally controlled. There is no competition which means that all decisions are made by bureaucrats rather than responding to competitive pressures.

The main differences between a market economy and a command economy

  • The main difference between a market economy and a command economy is the ownership and decision-making aspects. A market economy is owned by the individuals and decisions are taken by them whereas a command economy is owned by the government of the nation which also takes the decisions related to it.
  • In a market economy the goods will be supplied keeping in mind the preferences of the consumer, while in a command economy the preference of the consumer will not be considered .
  • A market economy encourages the development and innovation of individuals, and a command economy does not encourage or give less importance to development and innovation.
  • A market economy has a weak work ethic as it places more emphasis on market competition, while in a command economy, the government manages business pattern and reduces unemployment and unhealthy practices.
  • A market economy places more emphasis on profit and a command economy focuses more on the welfare of the people.


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