We explain that what is the difference between market economy and command economy with table. The economic system of functionality and existence is very important in economics. It deals with how and when to produce the goods, the types of goods that will be produced and who produces them. Government laws, the rights of consumers and producers will also be considered by the economic system.
The economic system includes the market economy, the command economy, and the mixed economy. The important decision will be made by the government or the individual about the supply of goods, the price of goods, etc.
The market economy is one of the economic systems where the economic decision is made by individuals or the private sector such as the price of goods, the supply of goods. The goods and services produced will be administered by the law of supply and demand.
The command economy is another economic system where the economic decision will be made by the government about what and how to produce goods. It will not depend on the law of supply and demand as the market economy does.
The difference between the market economy and the directed economy , that is, the market economy is an economic system managed by people or companies and economic decisions are made by them. While the command economy is a system where economic decisions are made by the government.
Comparison table between market economy and command economy
Comparison parameter Market economy Command economy
|Property||Economic decisions are managed by buyers and sellers based on supply and demand.||The general economic decision is controlled by the government.|
|preferences||In the market economy, goods will be supplied considering the preferences of consumers.||Consumer preference will not be considered.|
|Innovation||It encourages the development and innovation of people.||It does not encourage development and innovation.|
|Business ethics||You have poor business ethics as you focus more on market competition which can lead to unemployment.||The government runs the business mode and reduces unemployment and other unhealthy practices.|
|goals||Focuses more on profit||It focuses on macroeconomics and social objectives.|
What is the market economy?
The market economy is one of the economic systems where economic decisions are made by individual companies or private sectors on many factors that involve goods. The economic law of supply and demand plays a vital role in economic decision-making.
The buyer and seller will decide the price of the goods, sometimes it is also negotiated. In this system, they sell the goods at a maximum price that is considered the highest reasonable price for consumers to buy the goods.
The market economy is based on the theory of supply and demand. Here the land, capital, goods and labor are owned by individuals or companies. Taking into account the consumer’s preference, the goods and services will be supplied. When demand is high, the market economy produces goods at the maximum price that consumers can buy and makes more profit.
The advantages of the market economy are
- Most of the property or goods and services are their own, they can decide the purchase and sale price, keeping profit as a priority. They have complete freedom to sell, buy or produce in the market.
- It focuses more on consumer preferences. If goods are produced according to consumer preferences, the goods can be priced at the maximum price that consumers can buy. The market economy places more importance on and rewards efficient producers as they produce goods and services and make a profit.
The disadvantages of the market economy are
- In the market economy, individuals or companies own property or goods and services, the price of goods can be very high while keeping profit as their priority.
- Producing goods and services according to consumer preferences is competition, they can think ahead and they can also practice unhealthy business. It can lead to unemployment and layoffs.
The market economy is the economic system that focuses more on technology and consumer demand.
What is Command Economy?
The command economy is another economic system where the decision is in the hands of the government of a nation. The law of supply and demand plays no role in this system.
In the command economy system, there is also a participant in the political system. The decision to mass-produce products without regard to consumer preference. Here the goods and services they produce may be out of date and the price will be decided by the government taking into account that everyone can afford to buy them domestically.
Directed economy is more focused on macroeconomics and social objectives than on profit-making. It controls the price and, compared to the market economy, gives less incentive to its efficient producers. The benefit will be assumed by the government.
The advantages of a Command economy are
- The command economy avoids inequality by controlling the price and gives importance to social welfare rather than to profit.
- Avoid or reduce unhealthy business practices
- Prevents mass layoffs or unemployment.
- It also helps government companies overcome market failures.
- In the command economy, production is based on a plan drawn up by the government.
- Make the most of national capital and natural resources.
- It makes use of the ability of each individual.
- The main purpose of produce the basic requirements of the people in the country.
The disadvantages of command economy are
- In the command economy, government companies will have very little information about the goods and services that consumers want.
- Here they do not consider the preferences of the consumer or want
- There will be no stimulus for people’s ideas or thoughts.
- It works according to the government plan.
In the command economy, the government has decision-making power and controls monopoly power.
Main differences between the market economy and command economy
- The main difference between the market economy and the command economy is the ownership and decision-making aspects. The market economy is owned by private individuals and decisions are made by them, while the command economy is owned by the nation’s government, which also makes decisions about it.
- In the market economy, goods will be supplied considering the preferences of consumers. Whereas in the Command economy consumer preference will not be considered.
- The market economy encourages the development and innovation of people and the command economy does not encourage or place much less importance on development and innovation.
- The market economy has a poor business ethic as it focuses more on market competition. While in the command economy, the government manages the business mode and reduces unemployment and unhealthy practices.
- The market economy is more focused on profit and the command economy is focused on the well-being of the people.
Both the market economy and the command economy are economic systems, which play an important role in the development of the country’s economy. In the market economy, the buyer or the seller decides the production. Products will be sealed at the highest price that consumers can afford. In the command economy, the government makes decisions about production and controls the price to maintain equality in society.
Most of the countries follow the mixed economic system for the rapid growth of the country’s economy. There are some countries that even now follow only the command economy, like Cuba, North Korea, etc.
Both the market and the command economy are good for maintaining harmony in the country and for the development of each individual in the country.