Economics Command Economy Questions Medium
In a command economy, supply and demand are managed by the central authority or government. Unlike in a market economy where prices and production decisions are determined by the interaction of supply and demand, in a command economy, the government controls and regulates the allocation of resources and sets production targets.
To manage supply, the government determines the quantity and types of goods and services that will be produced. It does so by creating a central planning agency that formulates detailed production plans for various sectors of the economy. These plans outline the specific quantities of goods and services to be produced, the allocation of resources, and the production methods to be used.
To manage demand, the government typically sets prices for goods and services. These prices are often fixed and determined by the central planning agency based on the government's assessment of the needs and preferences of the population. The government may also control the distribution of goods and services through rationing or quotas to ensure equitable access.
In a command economy, the government aims to achieve specific social and economic goals, such as equitable distribution of resources, social welfare, and economic stability. However, the lack of market forces and price signals can lead to inefficiencies, shortages, and surpluses. Additionally, the central planning process may not accurately reflect consumer preferences and can result in misallocation of resources.
Overall, in a command economy, supply and demand are managed through central planning, government control over production decisions, and price setting by the central authority.