In a command economy, the government controls major aspects of economic production. The government decides the means of production and owns the industries that produce goods and services for the public. The government prices and produces goods and services that it thinks benefits the people.

When markets or governments make economic decisions about what goods and services their resources will be used to make what basic economic question are they answering?

The question “How to produce?” is the one that needs to be answered when making this decision. Once a market or a government has the resources, they already know what they want to produce, so the following question to be answered is how to produce it.

Who should own the factors of production?

In a simplified model of an economy, known as a circular flow diagram, households own the factors of production. They sell or lend these factors to firms, which produce goods and services that households buy.

What are the characteristics of a command economy?

1 Understanding Command Economy. Also known as a planned economy, command economies have as their central tenet that government central planners own or control the means of production within a society. 2 Other Characteristics of a Command Economy. 3 Drawbacks of Command Economies. 4 Arguments in Favor of Command Economies. …

How are monopolies used in a command economy?

Private ownership or land, labor, and capital is either nonexistent or sharply limited to use in support of the central economic plan. Monopolies are common in command economies as these entities are considered necessary in order to meet the goals of the national economy. How Do Command and Free-Market Economies Differ?

Why are command economies unable to allocate goods?

Command economies are unable to efficiently allocate goods because of the knowledge problem, or the central planner’s inability to discern how much of a good should be produced. Shortages and surpluses are common consequences of command economies.

What are some countries with a command economy?

The command economy is a key feature of any communist society. Cuba, North Korea and the former Soviet Union are examples of countries that have command economies, while China maintained a command economy for decades before transitioning to a mixed economy that features both communistic and capitalistic elements.