What is the difference between a command and a market economy?
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Q:

What is the difference between a command and a market economy?

A:

Quick Answer

The government has more authority in a command economy, while private citizens and companies have more influence in a market economy, according to Infoplease from Pearson Education. The government directs the types and levels of production in a command market. Private producers choose the amount of goods to supply the market in a market economy.

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Full Answer

The United States has a market economy. The U.S. government intervenes moderately to set price floors and price ceilings. Otherwise, prices of goods and services are driven by the level of consumer demand for them, notes Infoplease. If consumers demand more than suppliers can produce, prices are typically high. If consumers do not want what suppliers produce, prices are typically low.

In a command economy, all aspects of the production and usage levels are planned by the government. Government officials evaluate the resource needs of the marketplace and forecast necessary production levels. Then, producers are directed to manufacture a prescribed quantity of goods during a period of time. Socialism and communism are primary forms of government that rely on command economies, according to Infoplease. The goal of a command economy is to ensure equal rationing of goods. The primary goal of a market economy is to promote innovation and ambition in spite of the potential for income inequality.

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    What are characteristics of a command economy?

    A:

    A command economy is one in which the government is the chief agent in all major economic actions. The government goes as far as to determine what is to be made, how much is made, how it is distributed and how it is transformed into services the public can use. In many instances, even prices are set by the government.

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    How are resources allocated in a market economy?

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    In a market economy, resources are distributed based on the profitable interactions between producers and consumers. These interactions obey the fundamental law in economics, which is the law of supply and demand.

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    A market economy is driven by supply and demand. Producers sell goods for the highest prices possible, and members of the labor force work for the highest wages they can earn. Determinations as to how goods and services are allocated are made primarily by markets.

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    What is an example of market economy?

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    An example of the way a market economy works is how new technology is priced very high when it is first available for purchase, but the price goes down when more of that technology becomes available. This kind of price fluctuation is a central component of a market economy. That is, supply and demand dictates prices.

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