What are the disadvanteges and advantages of a command economy and a market economy?

Question

I need to know the adavantages and disadvantages of a command economy and a market economy.... Command is Russia and Market is U.S.A. that's what I am comparing


Thanks for helping!

Answer 1

The basic distinction is that a market economy allows individuals to make all the decisions about the factors of production (what to make, how to make, how much to make, what to charge). A planned economy has a central body that makes decisions.

A market economy is driven by supply and demand to efficiently allocate resources. This leads to better decision-making. It allows individuals to succeed or fail as economics dictate. I firmly believe there are NO advantages to a planned economy. Central planning is slow to make decisions and even slower to adjust to changes. This leads to much inefficiency and waste. Without the profit motive, it also kills innovation. The usual textbook answer about the the "advantages" usually points to Marxist ideals about balancing social inequality, wealth, and other such gobbledygook. Which of course is garbage.

Answer 2

Market economies are more efficient . You only have to look at the state of communist countries to know this. Governments can provide for public goods, social and income inequality can be substantially reduce in a market economies thru taxation and welfare (for example Sweden or Norway). The advantages of a command economy are really hard to see. The military works like a command economy. In a country totally mobilized for war or to confront a national disaster, a command economy might work better because of free rider problems inherit in all consumption under such circumstances.

Answer 3

OK market economies have been covered. What are the advantages to a planned economy?
Primarily it is in ensuring Pareto efficiency where the market fails.
This comes down to negative and positive externalities.
A negative externality is a where an effect of the production and/or consumption of a product is felt by a party not involved in the production or consumption and this impact is negative. For an example we eat sausage but do not live near the sausage factory that gives off a terrible smell. I engage in a contract to purchase the amount of sausage where marginal benefit to me is equal to marginal cost being charged. But the person living next to the sausage factory is suffering from the smell. That is he is experiencing a "cost" as well. I do not take his cost into account.
Equally so an externality can be positive - ie a benefit can be felt by a third party. For instance if I buy health insurance I can see a doctor and get better more quickly. Hence I can get back to work more quickly. This is of benefit to me, but also to my employer who has a more reliable productive workforce as a result. I do not take into account the benefit gained by my employer in getting health insurance when I decide to do so.
Both of these examples therefore result in a pareto inefficient outcome.
But in a planned economy, theoretically the production of both sausages and health insurance will take into account all benefits and costs.
In practice we have seen market economies limit market freedom (through anti trust laws, regulation, taxes and subsidies) to deal with this. Equally we have seen central planners in command economies fail to take into account costs and benefits, and indeed wieght thier own costs and benefits more highly in decision making.