Command Economy

Command Economy What to Produce How to Produce For Whom to Produce Completely determined and controlled by a central authority . Central Planning: Planning is an integral part of a Socialist economy. In this system, all decisions are undertaken by the central planning authority. . Maximum Social Benefit: Social welfare is the guiding principle behind all economic activities. Investments are planned in such a way that the benefits are distributed to the society at large. . Non-existence of Competition: Under the socialist economic system there is absence of competition in the market. The state has full control over production and distribution of goods and services. The consumers will have a limited choice. . Absence of Price Mechanism: The pricing system works under the control and regulation of the central planning authority. . Equality of Income: Another essential feature of socialism is the removal and reduction of economic inequalities. Under socialism private property and the law of inheritance do not exist. . Equality of Opportunity: Socialism provides equal opportunity for all through free health, education and professional training. . Classless Society: Under socialism, there is a classless society and so no class conflicts. In a true socialist society, everyone is equal as far as economic status is concerned. Merits of Socialism . Reduction in Inequalities: No one is allowed to own and use private property to exploit others. - - Introduction to Macro Economics . Rational Allocation of Resources: The central planning authority allocates the resources in a planned manner. Wastages are minimised and investments are made in a pre planned manner. . Absence of Class Conflicts: As inequalities are minimum, there is no conflict between rich and poor class. Society functions in a harmonious manner. . End of Trade Cycles: Planning authority takes control over production and distribution of goods and services. Therefore, economic fluctuations can be avoided. . Promotes Social Welfare: Absence of exploitation, reduction in economic inequalities, avoidance of trade cycles and increase in productive efficiency help to promote social welfare. Demerits of Socialism . Red Tapism and Bureaucracy: As decisions are taken by government agencies, approval of many officials and movement of files from one table to the other takes time and leads to red tapism. . Absence of Incentive: The major limitation of socialism is that this system does not provide any incentive for efficiency. Therefore, productivity also suffers. . Limited Freedom of Choice: Consumers do not enjoy freedom of choice over the consumption of goods and services. . Concentration of Power: The State takes all major decisions. The private sector takes no initiative in making economic decisions. Hence, the State is more powerful and misuse of power can also take place. . . Mixed Economy (Mixedism):