Overview
This lecture explains the structure of a command economy, how it answers basic economic questions, and highlights its main advantages and disadvantages.
What is a Command Economy?
- A command economy is controlled by a central authority, usually the government.
- The government answers the three basic economic questions: what to produce, how to produce, and for whom to produce.
- Individuals and businesses have little decision-making power.
- North Korea is a modern example of a command economy.
- Communism often includes command economy traits.
Advantages of a Command Economy
- Can quickly shift economic direction and reorganize resources (e.g., rapid industrialization in the Soviet Union).
- Provides many public services at low or no cost to the population.
- Removes individual uncertainty about economic roles and jobs.
Disadvantages of a Command Economy
- Limits innovation and creativity due to lack of individual choice.
- Reduces incentives for people to excel or improve productivity.
- Often fails to meet individual wants and needs effectively.
- Struggles with day-to-day issues and minor details due to slow bureaucracy.
- Requires a large administrative system to manage and control the economy.
Key Terms & Definitions
- Command Economy — An economic system where a central authority determines production, distribution, and prices.
- Central Authority — The government or ruling body that controls economic decisions in a command economy.
- Economic Questions — Fundamental questions every economy must answer: what to produce, how to produce, and for whom to produce.
- Bureaucracy — A complex administrative system needed to implement government decisions.
Action Items / Next Steps
- Review and understand how a command economy answers the three basic economic questions.
- Know the main advantages and disadvantages of command economies.
- Read guided notes in the description if provided.