Difference Between Command Economy and Market Economy

Command Economy vs Market Economy

The economy can be seen as anything and everything related to production and consumption of goods and services in a country or an area. The field of study that talks about the economy is economics. The main areas of economics are micro economics and Macro economics. There are mainly three types of economy; namely, market economy, command economy, and mixed economy. The mixed economy is a combination of market economy and command economy.

Market Economy

In the market economy, the prices of goods and services are determined in a free price system set by the supply and demand of the goods or services. In other words, it is a free market economic system; that is, the market is free to decide the prices based on demand and supply, and there is no interference from any party. Free market economy and free enterprise economy are the other names used to refer the market economy.

Command Economy

Command economy is an economic system in which the government of the country controls the production factors and makes all decisions about their use and about the distribution of income. That is, here the government planners decide what to produce, how to produce and for whom to produce. Command economy is also known as planned economy. In this economy, government possesses ownership of all lands, capital and other resources. Here, government will decide how to distribute the output that was produced among the population.

What is the difference between Market Economy and Command Economy?

Both the market and command economies have a number of features different from one other, however the main reason for the differences is the degree of government intervention, which varies very much. That is, the government intervention lies in two extremes in the two systems of economy. In the command economy, the government has its full intervention, whereas no or little government influence in the market economy.

In  the command economy system, the decision making is centralized, whereas in the market economy, decision making is done by several individuals; that is, decision making is decentralized. The market economy is an economy based on division of labour, but that is not so in the command economy. In the market economy, price of goods and services is set by the supply and demand, whereas in the command economy prices are determined by the government. Choice of goods available to customers is higher under the market economy system than in the command economy system.

In the command economy, land and other resources are owned by the government, whereas in the market economy, ownership of land and resources are with individuals or firms. In the command economy, distribution of goods and services are decided by the government, whereas in the market economy, distribution is decided by firms themselves. In the command economy, the government decides the quantity of output, whereas in the market economy, demand decides quantity of output.