A Comparison of Command Economies and Market Economies

CHARACTERISTIC	COMMAND ECONOMY	MARKET ECONOMY
ownership of resources:	government ownership	private ownership
decision making:	centrally planned	by the market
motivation:	"social good" = INCENTIVE PROBLEM	self interest and profit = INCENTIVE
prices and wages:	set by the government often distorted causing COORDINATION PROBLEM	set by the market change with market help coordinate resources help achieve alloc. and prod. eff.
result:	inefficiency full employment low inflation low standard of living shortages more equal distribution of income	alloc. and prod. efficiency periods of unemploy. periods of inflation high standard of living wide range available less equal distribution of income
problems:	lack of incentives = INCENTIVE PROBLEM distorted prices = COORDINATION PROBLEM inefficiency corruption=self interest	IF lack of competition = inefficiency inequality changing prices instability (UE, IN) pollution
OVERALL:	LESS FOR MORE = INEFFICIENT Allocative INefficiency Productive INefficiency LESS Economic Growth Maybe more Equity Usually Full employment	MORE FOR LESS = EFFICIENT Allocative Efficiency Productive Efficiency MORE Economic Growth Maybe more INequity Periods of UNemployment