Difference Between Free Market Economy and Command Economy Decision Makingįree market Economy:Decision making is done by several individuals such as buyers, sellers, intermediaries, etc.Ĭommand Economy: The decision making is centralized and done by the authorized government entities Role of Governmentįree market Economy:The government has little influence over the economic activities.Ĭommand Economy: The government has its full control over all the economic activities. Similarities Between Free Market Economy and Command Economyīoth economies perform with general economic players such as producers and consumers, goods and services, and money and labor the aim of both is to produce goods and services that are demanded by the citizens using the least amount of resources. Cuba, North Korea, and the former Soviet Union are examples of countries that have command economies. The command economy is a key feature of any communist society. People in power, such as politicians, give orders to buyers, sellers, and investors and the equilibrium will be determined by the government itself. The command economy has state-owned entities as well as privately-owned entities, but both have a significant amount of control over government rules and regulations. Depending on the criticality of the level of intervention, the government may even assign people to respective jobs. This is also known as a centralized economy. The government has the power to control the pricing of goods and services, quantity of output, distribution of goods, labors, etc. If the whole financial management of country is controlled by the government, that economy is identified as a command economy. Both buyers and sellers agree with the equilibrium price without a single intervention of government. Hence, no intervention comes from the government to the economic system, primarily to the demand and supply, in terms of laws or any other regulations. The buyers and sellers do their transactions freely according to the agreements which they have made freely on the price and quantity of a good or a service. It is solely based on demand and supply in the free market system, there is minor or no government regulation. What is the difference between Free Market Economy and Command Economy?Ī free market is a system in which the prices of goods and services are determined by the buyers and sellers. – Definition, Characteristics and Featuresģ. This disparity in control can be termed as the main difference between free market economy and command economy. The free market economy is controlled by private owners whereas command economy is controlled by the government. The market economy, capitalist, laissez-faire are the terms that use to describe the free market economy whereas command economy is similar to a socialist economy. Two systems often mentioned when centrally planned economies are discussed are socialism and communism.Main Difference – Free Market Economy vs Command EconomyĮconomics can primarily be classified into four types as traditional economy, market economy, command economy and mixed economy. In a Centrally planned economy, also known as a command economy, the central government controls the factors of production and answers the three basic economic questions for all of society. Which economic system do individuals answer the three economic questions? How should these goods and services be produced?.What goods and services should be produced?.In this regard, how are the 3 basic economic questions answered in a market economy?īecause ALL economic resources are scarce, every society must answer three questions: Subsequently, question is, what societal values play a role in how the three basic economic questions are answered in the United States? *How should these good and services be produced? *Who consumes these good and services? In order to meet the needs of its people, every society must answer three basic economic questions: Economic systems answer three basic questions: what will be produced, how will it be produced, and how will the output society produces be distributed? There are two extremes of how these questions get answered.Ĭonsequently, what are the 3 economic questions that must be answered?