Planned Economic System is an arrangement where all
the economic questions are answered by government. Examples include; Cuba , China
A command economy is named so because the
government has the power to control the nation’s economic resources. It is the
government which decides how land, labour and capital shall be employed.
In a Command Economy, all the means of production
are owned and controlled by the state. Production and distribution are aimed at
maximizing welfare of the people. These economies are generally described as
‘Centrally Planned Economies’.
Features of
Command Economy
- Public
Ownership
In a Command Economy, economic resources are publicly
owned.
- Land and
all types of capital are owned by the state.
- Private
ownership is limited to personal possessions and small businesses.
- Resources
are publicly owned in order to distribute income and wealth more equally.
- There will
be no personal income derived from the ownership of property.
- Planned
Production
Economic activities in the Command Economy are
carried out according to a national plan.
·
Resources are allocated to industries by the government directives.
·
Economic questions are answered by the state.
- Price
In a Command Economy, prices are fixed by the
government. Price does not change in response to the changes in demand and
supply.
- Aim of
Production
In a Command Economy, production is carried out for
the welfare of the people but not to maximize profit.
Advantages
of Command Economic System
1.
Economic activities
are free from instability
2.
Income and wealth
are equally distributed
3.
Every citizen is
provided with minimum requirements like food, clothing, health and education
4.
The nation has
command over its economic activities
5.
Economic activities
are well planned and targets are fixed. Resources are allocated for the
realization of these targets
Disadvantages
of Command Economic System
1.
Less consumer
choice as it provides only a limited range of goods and services
2.
Absence of
competition leads to reduce the quality of products
3.
Lack of profit
motive leads to lack of initiative and invention
4.
In most command
economies, there is a shortage of goods which push up the prices of most essential
goods
5.
Higher degree of
government influence leads to beaurocracy and its drawbacks like corruption and
bribery
Why
do government exercise control over the economy
1.
To minimize
inequalities in income and wealth
2.
To minimize the
evil effects of economic instability
3.
To control dominant
firms
4.
To provide welfare
measures for the economically weaker section of the society
5.
To evaluate the
social costs and social benefits of various economic activities and to decide
whether or nor to carry out these activities
6.
To provide merit
goods and services
7.
To provide public
goods and services
Difference
between the Market and Command Economic System
Market Economies
1.
Resources are
privately owned
2.
It has freedom of
choice
3.
Resources are
allocated through the price mechanism
4.
Aim of production
is to maximize profits
5.
Prices are
determined by the market forces of demand and supply
6.
Inequalities in
income and wealth
7.
Merit goods and services
and public goods and services are not provided
8.
More consumer
choice. Wider range of goods and services are available
Command
Economies
1.
Resources are
publicly owned
2.
No freedom of
choice
3.
Resources are
allocated by the government directives
4.
Aim of production
is welfare
5.
Priced are fixed by
the government
6.
Equal distribution
of income and wealth
7.
Merit goods and
services and public goods and services are provided
8.
No consumer choice.
Limited range of goods and services are available
