Command Economy Definition, Pros, and Cons.
                     Command Economy: 
Definition, Pros, and Cons
Command Economy
• A command economy is one in which a centralized government controls the means 
of production. This has both advantages and disadvantages when compared to a 
free market economy.
Source: www.investopedia.com
ADVANTAGES OF A COMMAND ECONOMY
Less Inequality
• Because the government controls the means of production in a command 
economy, it determines who works where and for how much pay.
Source: www.investopedia.com
Low Unemployment Levels
• Unlike the invisible hand of the free market, which cannot be manipulated by a 
single company or individual, a command economy government can set wages and 
job openings to create the unemployment rate and wage distribution that it sees 
fit.
Source: www.investopedia.com
Common Good Versus Profit Priority
• Whereas the motivation for profit drives most business decisions in a free market economy, it is 
a non-factor in a command economy. 
• A command economy government, therefore, can tailor products and services to benefit the 
common good without regard to profits and losses. 
Source: www.investopedia.com
DISADVANTAGES OF A COMMAND ECONOMY
Lack of Competition Inhibits Innovation
• Although those who favor government control criticize private firms that esteem profit above all 
else, it is undeniable that profit is a motivator and drives innovation. 
Source: www.investopedia.com
Inefficiency
• The nature of competition forces private companies in a free market economy to minimize red 
tape and keep operating and administrative costs to a minimum. 
• If they get too bogged down with these expenses, they earn lower profits or need to raise prices 
to meet expenses.
Source: www.investopedia.com
Characteristics of a Command Economy
• The government creates a central economic plan. The five-year plan sets economic and societal 
goals for every sector and region of the country. Shorter-term plans convert the goals into 
actionable objectives. 
• The government allocates all resources according to the central plan. It tries to use the nation's 
capital, labor, and natural resources in the most efficient way possible. 
Source: www.thebalance.com
Characteristics of a Command Economy Cont.
• The central plan sets the priorities for the production of all goods and services. That includes 
quotas and price controls. Its goal is to supply enough food, housing, and other basics to meet 
the needs of everyone in the country.
• The government owns monopoly businesses. These are in industries deemed essential to the 
goals of the economy. 
Source: www.thebalance.com