A command economy is an economic system where the government makes all economic decisions, including what and how much to produce and what prices to charge. It operates according to the principles of central planning, where a centralized authority directs economic activity. In this type of economy, citizens have little to no choice in what they consume and produce. This article outlines some of the prohibited practices in a command economy.
Overview of Command Economy
A command economy is a type of economy in which the government has complete control over the production, distribution, and prices of goods and services. The government decides which goods and services will be produced, how they will be produced, and what prices they will be sold at. The government also controls the wages of workers and the prices of other inputs such as raw materials and capital.
The government makes these decisions based on the goals it has set for the economy, such as full employment, price stability, and economic growth. In a command economy, there is no competition among producers, and the government has complete control over the economic activity of the nation.
Prohibited Practices in Command Economy
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Free Market Activities: In a command economy, the government has complete control over the production, distribution, and pricing of goods and services. Therefore, free market activities such as price competition and market forces are prohibited.
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Private Ownership of Property: Private ownership of land, capital, and other resources is prohibited in a command economy. All resources are owned by the government and allocated according to their plans and goals.
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Private Businesses: Private businesses are not allowed in a command economy. All businesses are owned and operated by the government.
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Foreign Trade: Trade with other countries is limited or prohibited in a command economy. The government has complete control over the import and export of goods and services.
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Wage and Price Controls: The government sets prices and wages in a command economy. Therefore, wage and price controls are imposed to keep prices and wages from rising too quickly.
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Investment: Investment decisions are made by the government in a command economy. Private investment is not allowed.
In a command economy, the government has complete control over the production, distribution, and pricing of goods and services. This type of economy is characterized by the absence of free market activities, private ownership of property, private businesses, foreign trade, wage and price controls, and private investment.
A command economy is a planned economy system where a central authority — usually but not always a government — controls production, resources, and how economic activities are regulated. While natural market forces of supply and demand don’t exist, the government makes decisions on production and consumption. This type of economy has certain prohibitions, or things it does not allow.
First, a command economy is not free-market-based, meaning that it does not allow for companies and individuals to freely buy and sell goods and services on an open market. Rather, it sets price controls and prevents buying and selling at more expensive rates.
Second, a command economy does not allow for a system of private companies. All companies are owned by the government and are managed and operated as directed by the government. This means that the decisions about what to buy or sell, what prices and wages to set, and other such matters are made solely by the government.
Third, a command economy also does not allow for competition between companies. Companies must operate in accordance with the government’s mandates and cannot undercut competitors in the service of boosting their own profits. This suppresses competition, which can stifle innovation and prevent the economy from reaching its full potential.
Fourth, foreign exchange is not permitted in a command economy. All investments must be made in the country’s own currency and exporting goods is strictly forbidden. This is intended to provide strong national financial security and to protect the country’s economic stability.
Finally, a command economy does not allow for the movement of capital between companies and individuals. All capital investments must be pre-approved by the government and investments must be made in highly regulated areas approved by the government.
Overall, the lack of natural market forces in a command economy means that certain types of economic activities are prohibited. From the lack of free-market aspects to restrictions on foreign exchange, the government maintains strict controls over every aspect of the economy. Although a command economy can improve the economic welfare of citizens, it also means that creativity, innovation, and competition are heavily suppressed.
