What Are the Differences Between a Market Economic System & a Command Economic System?

Written by maggie allen
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What Are the Differences Between a Market Economic System & a Command Economic System?
Market and command economic systems are opposite types of economic organisation. (euro currency image by Orlando Florin Rosu from Fotolia.com)

Market and command economic systems refer to ways to organise production and distribution of goods in an economy. Historically, the terms date to the Cold War when the U.S. was a market economy and the Soviet Union was a command economy. Today, there are a few examples of both types of system, but many governments in the world use mixed economic systems combining features of both.

Market Economic Systems

Market economic systems rely on the free production and exchange of goods and services to determine the price of the good. The government has little or no role in determining how much to produce or how much a good should cost. Often the term "free market economy" is used to describe a market economic system; however, in reality, few pure market systems exist. Most governments play a role in the economic system through regulation or taxation.

Command Economic Systems

Command economic systems are also called planned economic systems because the government plans and controls all production of goods and services. The government makes all major decisions about how and how much to produce and how to distribute products. Current examples of command economies are Cuba, Saudi Arabia, North Korea and Iran.

The Major Difference

The major difference is the role of the government. In a market system, the government allows private owners to make production and distribution decisions based on their interests and incentives. In a planned economy, the government makes all these decisions based on a macroeconomic plan. Market and command economic systems are extremes in the continuum of various economic systems.

Mixed Economic Systems

Many economies are mixed systems in the world today. The government may own or support some sectors of the economy, such as transportation, health services or energy transmission lines. Governments consider these goods important to the economy and the society and therefore do not allow private owners to make the decisions about supply and prices. However, for other goods and services, the government assumes a small role.

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