what is prohibited in a command economy? select two answers.

Dou Vamel yi

2 min read

·

16-01-2025

1

0

Share

What's Prohibited in a Command Economy? (And Why)

Command economies, also known as centrally planned economies, are economic systems where the government controls the means of production and distribution of goods and services. This centralized control inherently prohibits certain activities and choices that are common in market economies. While the specifics vary from country to country and time period to time period, two key prohibitions stand out:

1. Private Ownership of the Means of Production:

This is arguably the most fundamental prohibition in a command economy. The government owns and controls all major industries, resources, and businesses. Private individuals and companies are generally not allowed to own factories, land used for large-scale production, mines, or other significant means of generating goods. This contrasts sharply with market economies, where private ownership is a cornerstone. Attempting to establish a private business in a centrally-controlled sector would be illegal.

• Why this is prohibited: Centralized control is the core principle. Allowing private ownership would undermine the government's ability to direct the economy according to its plans. The government seeks to eliminate competition and independent decision-making regarding production.

2. Free Market Pricing and Competition:

In a command economy, prices are typically set by the government, not by the forces of supply and demand. This means there's little to no genuine competition between businesses. Producers are not incentivized to innovate or improve efficiency because profits aren't directly tied to market forces. The government dictates production quotas, resource allocation, and pricing, removing the dynamic interplay of a competitive market. Attempting to undersell government-set prices or engage in unauthorized price negotiations would be illegal and severely punished.

• Why this is prohibited: Free markets and competition threaten the government's control. Allowing supply and demand to dictate prices would disrupt the government's economic plans and potentially lead to shortages or surpluses. Competition could also expose inefficiencies in the state-run industries.

Beyond the Basics: While private ownership and free markets are the core prohibitions, other restrictions frequently appear in command economies. These can include:

• Freedom of Choice for Consumers: Limited variety of goods and services. Consumers often have little say in what is produced.
• Free Movement of Labor: Restrictions on workers changing jobs or locations. The government often assigns workers to specific roles and locations.
• Foreign Investment and Trade: Significant limitations or complete prohibitions on foreign businesses and international trade. The government aims to maintain control over resources and production within the country.

It's important to note that pure command economies are rare in the modern world. Most economies blend elements of central planning with market mechanisms to varying degrees. However, the principles outlined above highlight the essential characteristics that define the restrictions and limitations imposed under a truly command-based system.