Command Economy Flashcards
What is a command economy?
An economy in which resources are allocated b the state.
What are the main characteristics of a command economy?
-State ownership of resources
-State determines price
-Producers aim to meet production targets set by the state
-State allocates resources
-Greater equality of income and wealth than in a free marker economy.
What is Karl Marx view of a command economy?
-Capitalism was inherently unstable because workers are exploited by the bourgeoisie
-there would be a proletariat revolution in which communism would result.
What are the advantages of command economies?
Greater equality: the state can ensure that everyone can enjoy a minimum standard of living and that no one is extremely rich.
Macroeconomic Stability: the state can ensure that booms and slumps are smoothed out.
External benefits and external costs: these may be taken into account when planning production.
No exploitation: privately owned monopolies are unable to exploit workers and consumers.
Full employment: the state can ensure that all workers are employed.
What are the disadvantages of command economies?
Inefficiency: the absence of the profit motive and competition may result in an inefficient allocation of resources.
Lack of incentives to take risks: again, the absence of the profit motive may reduce incentives for investment.
Restrictions on freedom of choice: people would be directed into the jobs the state deems necessary.
Shortages and surpluses: if the state miscalculates supply and demand then there may be excess demand and/or excess supply of goods and services.
Bureaucracy: a vast army of officials is needed to allocate resources.
No consumer sovereignty: decisions by the state rather than consumers determine what is produced.
Inflexibility: the state may be slow to react to changes in consumer needs.
