what is prohibited in a command economy select two answers

Charlotte

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01-03-2025

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What's Prohibited in a Command Economy? (And Why)

A command economy, also known as a planned economy, is an economic system where the government controls the means of production and distribution of goods and services. This contrasts sharply with market economies, where these decisions are driven by supply and demand. While the goal of a command economy is often to ensure equitable distribution of resources and achieve specific economic goals, it inherently restricts certain activities. Two key prohibitions within a command economy are:

1. Private Ownership of the Means of Production:

This is arguably the most fundamental prohibition in a command economy. In a market economy, individuals and businesses can own factories, land, and other resources necessary for production. They can then use these resources to produce goods and services, competing with others in the marketplace. A command economy, however, vests ownership of these means of production solely in the state. Private ownership is forbidden because it's seen as undermining central planning and the government's control over resource allocation. Attempting to privately own a factory, for example, would be illegal and subject to punishment. This restriction stifles entrepreneurship and innovation, as individuals lack the incentive or legal ability to start their own businesses or invest in new ventures.

2. Free Market Pricing and Competition:

In a market economy, prices are determined by the interplay of supply and demand. Businesses compete with each other, offering goods and services at prices that consumers are willing to pay. This competition drives efficiency and innovation. Command economies, however, typically set prices centrally. The government dictates the cost of goods and services, often regardless of actual production costs or consumer demand. This lack of competition leads to inefficiencies, shortages, and surpluses. A business cannot freely set its prices to better compete, or innovate by offering a lower price than its competitors because the government dictates pricing. Attempts to circumvent these controlled prices are often met with severe penalties.

Why These Prohibitions Exist:

These prohibitions exist because they are fundamental to the functioning of a command economy. The government aims to control the entire economic system, ensuring that resources are allocated according to its plans. Private ownership and free market pricing would undermine this control, potentially leading to unpredictable economic outcomes that conflict with the government's objectives.

Consequences of these Prohibitions:

The consequences of these prohibitions are often negative. The lack of private ownership can stifle innovation and economic growth. The absence of free market pricing and competition can lead to inefficiencies, shortages, and a lack of responsiveness to consumer needs. These factors often contribute to lower overall standards of living compared to market economies. While some proponents of command economies argue they can lead to greater equality, historical examples demonstrate that these systems often struggle to meet the needs and desires of their populations.