Difference Between Market Economy and Command Economy

Edited by Diffzy | Updated on: November 10, 2022

       

Difference Between Market Economy and Command Economy Difference Between Market Economy and Command Economy

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Introduction

The framework in which all financial transactions take place is known as the economy. A country's economy plays a significant role in its overall structure and is made up of many framework subgroups, including those responsible for planning, managing, and balancing monetary activities. The items may be created, manufactured, used, traded, and delivered as part of the financial activity. The manufacturing facilities also assume responsibility for the products. As a result, when necessary, the manufacturer must also fix a problem that a user or customer is having with the device while it is under warranty.

The financial arrangements are made in a way that the product's utility is taken into account. Once it has been taken into account for subsequent components, one must use reports and analyses to determine how much of a demand there is for the product on the market and then create the proper supply as such with the appropriate pricing. Making agreements regarding the types of goods to be produced, how and when they will be delivered, and who will deliver the goods are all possible components of the arrangement.

The modern-day economy is a combination of both the market and command economies where individuals can take part as they see fit, but the government also applies some rules and regulations which in turn are beneficial for the economic growth of the nation and individual. Such a mixed economy is helpful and favourable to both the individual participant and the government, and mutual service is provided for the development and growth of the nation's economy.

The cycle of the financial arrangement or economic system will never end with this ever-growing demand for humans and their populations. The more people, the more demands to fulfil their needs.

Market Economy Vs. Command Economy

The market and command economy are the two polar ends of each nation's economic system. The main difference between the market economy and the command economy is that the command economy is the economy where the government undertakes all the decisions regarding the financial arrangements and the market economy is where the market is invisible and open for anyone eager to supply, demand, buy & sell, make a relevant investment in the products or means of productions.

The command market, in a way, is how communist nations handle the economy since every minor detailed arrangement is made by decisions undertaken by the government and even the how, when, and where of products selling and buying should be decided. The supply made in the command economy is irrespective of people's demand and even the price value is taken as per to make favourable changes on a national level. Hence, the price value, production, and supply of the product have nothing to do with the demand of common people but rather stagnate the economy. Such practice is quite helpful in wartime.

A market economy is an economic system in which the majority of important decisions are made by each individual interested participant; such an economy is completely unplanned. Individuals and business organisations are completely involved in the decision-making of the resources and their exchanges in various regions. This practice helps the overall growth of individuals and business organizations. And, it is also mutually beneficial to the nation's economy. However, the same thing can lead to an economic downturn. 

But, in reality, the combination of both economic methods is practised. 

Difference between Market Economy and Command Economy in Tabular form

Table: Market Economy Vs. Command Economy
Parameters
Market Economy
Command Economy
Meaning
The market economy is an invisible open market for every individual classifying from poor to the wealthiest. They can buy & sell the means of goods, productions of goods, and goods & services.
The command economy, as its name suggests, is a planned economy where everything is pre-planned by the government. It is not the same as the free market.
Ownership
Most purchases and sales are made by every individual in the nation. Most of the market economy is owned by people, entrepreneurs, and businesses.
The Central Government plans everything there is about nations' economy and wealth.
Advantage
The prices and production of services such as these are made by thousands of self-serving individuals. 
In the case of the command economy, the authority allows a nation to direct resources towards priorities rather than any organization.  
Preferences
Considering the consumer's need the goods and services are provided.
In the case of the Command Economy, the consumer's preference is not taken into consideration.
Scope
There is a growth and development of an individual and encourages even more individuals to participate in the market.
There is nothing as such in the development or growth of an individual or even a nation as everything is stagnated.
Ethics
The ethics are poor since every individual is competing with others which increases the completions and affects the employment.
Since the government controls the economy unemployment and malpractices are avoided.
Dependency
The market economy is dependent on the people of the nations as they are the ones who make supply and demand.
The command economy isn't dependent on but rather controlled by the central authority.
Used for
The objective is to earn profits.
The main objective is social and macroeconomics.

What is Market Economy? 

The market economy is the invisible marketplace where people buy and sell goods and products of goods by the laws of goods and services. For example, in India, such a regulating body is SEBI. People are free to make any number of purchases and sell them depending on their capabilities. and earn profit and even lose sometimes when the market is unstable.

Sometimes the government body and dirigiste economies do intervene for guidance on how further development in the market will happen through the industry's policies and planning. Such a type of announcement from any government body could shake the market economy and cause an upswing or even a downward spiral. Such a type of economy is called a mixed economy. 

The modern market economy works on supply and demand and is a planned economy where an individual or group of people invest in the market through a variety of possibilities and chances, the overall economy of the market, any news of a certain type, and technical analysis. The price of the products is determined by the supply and demand forces. Sometimes factors such as production, workers, and financial bankers are taken into consideration.

Although there can be lots of interference from the government regulating body in initiating the public offering by business organizations, such as licensing, quotas, price-fixing, and industrial financing. That could be the backend of the market economy because the market visible to the common man is free from any government involvement except for some rules and regulations from regulating bodies and/or industries that offer the products. 

The rules and regulations are not just for general individuals in the market but also the governing body. The intervention engages in just the announcement of any news regarding industry policies and planning, but the government body is quite restricted in the amount of money to be involved in the market economy. 

Most economists believe that the free market is a positive path for successive life by raising the standard of living, earning wealth, and overall growth in the economy of the nation.

What is Command Economy? 

The command economy is the name given for a reason. In the command economy, the authoritarian dictates to farmers, factories, and many other means of production to increase or decrease production, which goods and services to produce, where the produced goods and services should be distributed, and even how much price to be set for each distribution and good and service.

For this to be successful on the national level, there has to control over every little aspect of the market and its production units, people, their education, and inventions of such machinery as obligated by authority. By doing so, the economy of the state or nation could stagnate and so would the overall growth of the nation. The majority of such practices are carried out by communist nations, which have complete control over their country in all aspects. 

This was the communist approach to the command economy, but a similar approach can also take place in democratic and semi-democratic countries. By taking in the overall aspect of the world economy, the nation's government could take chances to hinder the economy of the nation by making restrictions and several commands for production units. 

The objective of the economy is not to earn profit but to just disrupt the flow of the economy, which would further affect not only on a national level but worldwide. But that is not it. A command economy is also known as a planned economy. As there is a chain of plans and strategies for every aspect taken into consideration. To accomplish the objectives specified for economic plans, significant national resources, including land, labour, and capital, are allocated.

Main Difference between Market Economy and Command Economy in Points

  1. The definition of a command economy is one in which a central government entity makes all decisions relating to goods, services, production, prices, and so on. On the other hand, the market economy is a free invisible open market for every citizen in the nation.
  2. The market economy is a free market and everyone can participate in the economy to build or abolish. Such is not the case with the command economy; authority controls every right of decision.
  3. Consumer needs are taken into consideration in the market economy as it is an open market for all. Consumer needs aren't the ones in the list of preferences in the command economy.
  4. The command economy is advantageous when there is a crisis or war because all resources are focused on a single objective. The market economy isn't much of a help while a war or crisis is happening, but it could cause an additional economic decline in the country.
  5. The objective of the market economy is to earn a profit, and the objective of the command economy is macroeconomics and social politics.
  6. The complete ownership of the open market belongs to the citizens of the nation. They have the power to change the economy with specific details and financial management. And in the case, of the command economy, the ownership of the market is of the central authority, who decides how, when, and where the products must be sold and bought.
  7. Since the overall citizens and business organizations handle the open market there is development and growth of each participant in either wealth or gain of new experiences, but the same is not the case with the command economy since there is control of authority the individual growth is far less.
  8. The rate of financial development is far low but there is income equality in the command economy, and the rate of financial development is indeed good but there is income inequality in the market economy.

Conclusion

There are both pros and cons to each economic system. One can be helpful for the stagnant while the other can help to develop or shake down as well. One can work for self-interest while the other is for the service of the nation. Such differences also make each economy unique and valuable for bizarre situations like wars and pandemics. 

The command economy is where the mobilisation of any resources is quick, there is a mutual vision, and no interruptions of any lawsuits. The market economy is where consumer preference is being considered, innovation and competition are better, and there is not much political indulgence as private ownership is practised. 

Each economic system plays a vital role in the overall world. And many nations continue to practise both economic systems with the hope of making a name for themselves in the world through their respective economic practices. 

References

  • Market economy - Wikipedia
  • Command Economy | Definition, Characteristics, Pros & Cons (financestrategists.com)
  • Command economy - RationalWiki

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"Difference Between Market Economy and Command Economy." Diffzy.com, 2022. Sun. 27 Nov. 2022. <https://www.diffzy.com/article/difference-between-market-economy-and-command-economy-1085>.



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