The economic system of functionality and existence is very important in the Economy. It takes care of how and when to produce the goods, types of goods to be produced, and who produces the goods.
Table of Contents
The economic system includes the market economy, command economy and mixed economy. The important decision will be taken by the government or individual of supply of goods, pricing of goods and so on.
Market Economy vs Command Economy
The difference between the market economy and command economy is that market economy is an economic system managed by individuals or businesses and economic decisions are taken by them. While the command economy is a system where the economic decisions are taken by the government.
The market economy is one of the economic systems where the economic decision is taken by individuals or private sectors such as the price of goods, the supply of goods.
The command economy is another economic system where the economic decision will be taken by the government as what and how to produce goods. It will not depend on the law of supply and demand as the market economy does.
|Parameter of Comparison||Market economy||Command economy|
|Ownership||The economic decisions are managed by buyer and sellers based on supply and demand||The overall economic decision controlled by the government|
|Preferences||In the market economy, the goods will be supplied considering consumer preferences||Consumer preference will not be considered.|
|Innovation||It encourages the development and innovation of individuals.||It does not encourage development and innovation.|
|Business Ethics||It has poor business ethics as more focus on market competition which may lead to unemployment||The government manages the mode of business and reduces unemployment and other unhealthy practices|
|Objectives||It more focuses on profit||It focuses on macroeconomics and social objectives|
What is Market Economy?
The market economy is one of the economic systems where the economic decision are taken by individual businesses or private sectors on many factors involving the goods.
The buyer and seller will decide the price of goods, at times negotiation also happens. In this system, they sell the goods at a maximum price which is considered the highest reasonable price to make the consumers buy the goods.
Considering the consumer 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 earns more profit.
The advantages of the Market economy are
- Most of the property or goods and services are own, they can decide on buying and selling price keeping the profit as their priority.
- It more focuses on consumer preferences. if goods are produced as per consumer preferences, the goods can be priced at the maximum price that consumers can buy.
The disadvantages of Market economy are
- In the market economy, the individuals or businesses own the property or goods and services, the pricing of goods may be very high keeping the profit as their priority.
- Producing goods and services as per consumer preference is competition, they may think the future aspects and may also practice unhealthy business.
What is Command Economy?
The command economy is another economic system where the decision lies in the hands of the government of a nation. Law of supply and demand does not play any role in this system.
In the command economy system, there is an involvement of the political system too. The decision to mass-produce products without considering the preference of the consumer.
Command economy more focused on macroeconomics and social objectives than making a profit. It controls the price and compares to the market economy it gives fewer incentives to its efficient producers.
The advantages of Command economy are
- The command economy avoids inequality by controlling the price and gives importance to social welfare than making the profit.
- It avoids or reduces unhealthy business practices
- It prevents mass layoffs or unemployment.
- It also helps government firms to overcome market failure.
The disadvantages of Command economy are
- In the command economy, government firms will have very less information about the goods and services that consumers want.
- Here they do not give considered the consumer preferences or want
Main Differences Between Market Economy and Command Economy
- The main difference between the market economy and command economy is the ownership and decision making aspects.
- In the market economy, the goods will be supplied considering consumer preferences. While in the Command economy consumer preference will not be considered.
I’ve put so much effort writing this blog post to provide value to you. It’ll be very helpful for me, if you consider sharing it on social media or with your friends/family. SHARING IS ♥️