Th1.1: Command Economies Flashcards
What happens in a command economy?
all factors of production, except labour, are owned by state and labour is directed by state
Everyone is assumed to be selfless, meaning…
there is no private property and everyone is assumed to be working for a common good
How is resource allocation carried out?
through the government, not the price mechanism
What is income distribution determined by?
the government
What are the main factors of command economies?
all workers, no matter their job, tend to receive the same wage
products are standardised
prices are limited causing excess demand and queueing
Who supported command economies?
Karl Marx
What did his theory state?
that these workers would inevitably rise against property owners and seize control of the means of production, leading to a democratic society
fall of capitalism to start communism
Where did Marx believe a capitalist’s profit came from?
exploiting labour as they underpaid workers for the value that they actually created
Advantage 1:
state provides minimum standard of living, therefore less inequality
Advantage 2:
less wastage of resources, as no need for competitive services or advertising
Advantage 3:
long term planning means industry doesn’t have to keep changing and shifting resources - many industries would fail if planning was short term
Advantage 4:
standardised products means they are produced cost effectively
Advantage 5:
objectives other than profit can be followed, as government are motivated by wellbeing of country - encouragement of merit goods
Disadvantage 1:
waste of resources as impossible for state to make so many correct decisions
Disadvantage 2:
decision making would be slow and could be increase in bribery and corruption (increase in bureaucracy)
