Disadvantages Of A Command Economy

Question 1

The price mechanism is unable to operate

Answer 1

• The price mechanism is unable to operate and so markets may suffer from shortages (excess demand) and surpluses, leading to an insufficient allocation of resources

Question 2

Lack of competition

Answer 2

• lack of competition leads to poor quality products especially when the emphasis is on maximising output and not profit

Question 3

Under performance

Answer 3

• under performance of command economies. Economic growth and living standards tend to grow at a much slower rate than in free market economies, this was the main cause of the collapse of the former Soviet Union during the early 1990’s