Handout D: Characteristics of Command and Market Economies
A. Characteristics of a command economy
- The state owns the factors of production (natural resources, capital goods)
- Planners in the state direct the economy
- Planners in the state determine what should be produced
- Planners in the state determine how to produce
- Planners in the state determine how goods and services are distributed
- Economic activity is based on collective well-being and in strengthening the state
- Individuals have little power to make decisions in buying, producing, and even in the nature of their work
- Private property is either limited or non-existent
- Work is obligatory and is on behalf of the state
B. Characteristics of a market economy
- Individual buyers decide what should be produced
- Individual sellers decide how to produce
- There is no central planner directing economic activity
- Emergent prices direct resources, goods, and services
- Private property rights are strongly protected
- People are free to buy and sell goods and services to satisfy their own desires
- The state’s power is strongly limited
- Human freedom in decision-making must be maximized
- The potential for profit provides the incentive to create and to work