Business

Difference Between Free Market Economy and Command Economy

Main difference

The main difference between the free market economy and the command economy is that the free market economy is controlled by the private members while the command economy is under the control of the government.

free market economy vs. command economy

The economy is divided into four different types i.e. market economy, traditional economy, command economy and mixed economy. All of these types have different weaknesses and strengths. The type of economy controlled by the private owner is known as a free market economy; On the other hand, the type of economy that the government controls is known as a command economy. Both types of economies play their role as general economic actors like producers and consumers, money and labor and goods and services, etc. Its objective is to deliver the goods and services demanded by citizens. In a free market economy, a decision is made by various people, such as sellers, buyers, and middlemen, etc. On the other hand, in the command economy, the decision is made by the authorized government.

Furthermore, the government has little effect on the economic activities in the free market economy, while the economic activities in the command economy are fully controlled by the government. The free market economy is based on a division of labor, while in the command economy there is no division of labor. Ownership of land and resources in a free market economy rests with individuals or companies, while all resources are owned by the government in a command economy. The free market economy fixes the price of goods and the quantity of production according to the supply and demand of the other side; In a command economy, the government decides the price and quantity of output.

The free market economy offers the customer a greater variety of available goods, while; The command economy offers the customer fewer options because it is decided by the government. The distribution of income is not similar in a free market economy because the distribution of goods is decided by the company itself, while the distribution of income is equal or fair in the command economy because here the distribution of goods is decided by the company itself. government.

Comparison chart

free market economy command economy
One type of economy controlled by the private sector is known as a free market economy. One type of economy controlled by the government is known as a command economy.
Decision making
Here several people participate in decision making, such as sellers, buyers, intermediaries, etc. In a command, the economic decision is made by the authorized government.
government role
The government has little effect on economic activities in a free market economy. Here the economic activities are fully controlled by the government.
Property
Ownership of land and resources in a free market economy belongs to individuals or companies. All resources are in the hands of the government.
Price
The free market economy sets the price of goods and services according to supply and demand. In a command, the economic price is decided by the government.
Quantity
The demand for goods decides the quantity of production. The amount of production is decided by the government.
division of work
A free market economy is based on the division of labor. The command economy does not have a division of labor.
choice of goods
Provides the customer with a greater variety of available products. The command economy offers the customer fewer options because it is decided by the government.
Distribution of goods
The distribution of goods is decided by the company. The government decides the distribution of assets.
income distribution
Income distribution is not similar in a free market economy. There is an equal or fairly fair distribution of income in the command economy.

What is the free market economy ?

A free market economy is a system with little or no government regulation where the prices of goods and services are decided by buyers and sellers. Sellers and buyers carry out their transactions in accordance with the agreements they have concluded on the quantity and price of a good or service. The quantity and price of goods are decided based on supply and demand.

What is the command economy ?

A command economy is a system in which the economy is fully controlled by the government. The command economy is the other name for the command economy. The price of goods and services, the distribution of goods, the work and quantity of production, etc., are all controlled by the government. The command economy has state and privately owned units that are controlled by government rules and regulations. Depending on the level of intervention, the government can also assign people to different jobs. In a command economy, the people in power, eg politicians, etc., give orders to the sellers, buyers and investors, and the government itself will check the balance. Cuba, the former Soviet Union, and North Korea are examples of countries with command economies.

Key differences

  1. A type of economy controlled by the private sector is known as a free market economy, while a type of economy controlled by the government is known as a command economy.
  2. A free market economy is based on the division of labor while; there is no division of labor in a command economy.
  3. In a free market economy, various people make the decision, such as sellers, buyers, middlemen, etc. on the other hand, in the command economy, the decision is made by the authorized government.
  4. The government has little effect on the economic activities in the free market economy, on the contrary, in a command economy, the economic activities are fully controlled by the government.
  5. Free market economy sets the price of goods and services according to demand and supply, on the other hand, in command economy, the price is decided by the government.
  6. The distribution of income is not similar in a free market economy because the distribution of goods is decided by the company itself, while in the managed economy there is an equal or fair distribution of income because here the distribution of goods is decided government.
  7. In a free market economy, the demand for goods decides the quantity of production, but the government decides the quantity of production in the command economy.
  8. Ownership of land and resources in the free market economy belongs to individuals or companies; On the other hand, all resources are owned by the government in a command economy.

Final Thought

From the above discussion, it is summarized that free market economy and command economy are two types of economic systems in which the free market economy is controlled by the private sector with little or no government intervention, while a command economy is totally controlled by the government. government.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button