Command Economy Flashcards
Command economy
An economic system in which most resources are state-owned and allocated centrally
Advantages of command economies
1. Industrial power
- the government might give themselves a lot of industrial Power by spending more on military or manufacturing industry
2. Social welfare improves
- a universal basic income which leads to less income inequality
- everyone can afford basic goods and services so will survive longer so standard of living increases
- better and free healthcare so can get treated faster
3. Lower prices of basic necessities for consumers
- gov set a maximum price very low so people can afford things
- max price would be below the equilibrium price and so retain more disposable income
4. Strategic goal alignment
- gov are dictated by the ideologies and so are going to massively invest into their visions
- allocate a lot of their fop and renewable resources
5. Economies of scale
- gov can benefit from economies of scale as they tend to buy massively in bulk
- good as they have limited funds and reduces opportunity costs
Disadvantages of command economies
1. Inefficiency
- allocative inefficiency as excess supply and demand as there is no price mechanism that doesn’t perform its function
- workers are less inefficient as there’s no profit incentive
- gov are welfare maximizers compared to firms who are profit maximizers
2. Shortages
- might introduce an implement price cuts below the equilibrium price
- if prices are too low people start demanding more so there’s excess demand and stock runs out so theres shortages
- no more utility for those who can’t buy it
- less competition as gov is the only producer so reduced supply
3. Lack of innovation and choice
- gov have full market share as they dominate the market and there’s no competition
- no incentive to improve and provide a variety as only provider
- can’t maximize consumer preferences
4. Lack of econ growth and International competitiveness
- due to know Innovations or low-quality goods are produced which cannot be sold abroad
- net exports go down, less overall growth
5. Black markets may arise
- no incentive to start a business
- shortages of people may start to buy from the shadow market which increases crime and more negative externalities
