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Comparison between Command System and Market System – is there a Middle Way?

In the assignment, I asked to think, will two types of economic systems converge into one? Those are market economies and command economies. Analyze this question concerning two or more economies involved in the changes. Economics is how society allocates scarce resources and goods; it also concerns production and consumption. Thus, two types of economy are command economy and market economy.

Command economy is a system where the government, rather than the free market, determines what goods should be produced, how much should be produced and the price at which the goods will be offered for sale. On the other hand, a market economy is an economy in which is decisions regarding investment, production and distribution are based on supply and demand.

  • Comparison between Command System and Market System
  • Command Economy
  • Market Economy
  • Resource Ownership
  • No private ownership
  • Privately Owned and individuals have freedom of choice to seek wealth
  • Resource Allocation
  • Economic decisions are made by governments based on social interest.
  • Producers produce what the people desire-consumer sovereignty.
  • Profit Motive
  • Profit motive provides no stimulus within the production process as all enterprises are socially owned.
  • Producers aim to maximize profits and minimize the cost of production.
  • Dominant of Economic Force
  • The government controls the prices
  • Price mechanism
  • Advantages and Disadvantages of Command Economy
  • Advantages

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The focus of a command economy is usually on the benefits of the country as a whole and the citizens therein. Because the government fully controls a command economy, it is minor subject to inflation and downturn than other economies. Other than that, command economies can also more equally distribute wages, bonuses, materials and services rather than focusing on the wealth and opportunity of select individuals.

When a command economy is used to benefit citizens equally and provide necessary resources to all, it can increase morale among citizens. Furthermore, because governmental agencies plan out this type of economy, it can consider the available resources and attempt to utilize them to their fullest potential.

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Disadvantages. In order to function well, the command economy requires an enormous amount of information which is difficult to obtain. Besides that, it may not lead to allocate efficiency or productive efficiency due to lack of competition and profit motives. Sometimes the economy does not respond as well to supply and demand, firms are simply told to produce a certain number of goods or services.

Other than that, the command economies do not have a real incentive for individuals to be innovative, goods are of poor quality since there is a lack of profit motive. The worst problem is corruption. The government has the ability to abuse its absolute power and the economy does not respond as well to supply and demand, firms are simply told to produce a certain number of goods or services.

Advantages and Disadvantages of Market Economy. Advantages. One of the advantages of the market economy is the market produces a wide variety of goods and services to meet the consumer’s wants. For example, firms will produce what people want because it is more profitable whereas anything which is not demanded will be taken out of production.

Next, the market system encourages the use of new and better methods and machines to produce goods and services. Other than that, the market also encourages the efficient use of resources. For example, Profit being the sole motive, will drive the firms to produce goods and services at lower cost and more efficiently. This will lead to firms using the latest technology to produce at lower costs.

Disadvantages. By using the market economy system, it will face the problems of unemployment. For example, businesses in the market economy will only employ those factors of production which will be profitable and thus we may find a lot of unemployment as more machines and less labour will be used to cut costs. Besides that, sometimes the free market can fail to provide certain goods and services. For example, there may be certain goods that might not be provided for by the market economy.

Those which people might want to use but don’t want to pay may not be available because the firms may not find it profitable to produce. Other than that, by using the market economy system, the consumption of harmful goods may be encouraged. For example, a free-market economy might find it profitable to provide goods that are in demand and ignore the fact that they might be harmful to society. Lastly, there will also have the problems of ignoring social costs. For example, in the desire to maximize profits, businesses might not consider the social effects of their actions, it will cause the poor to be unable to enjoy the goods and services.

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According to my research, command economy and market economy can be converted into one. It’s called a mixed economy. A mixed economy is an economic system that includes a mixture of capitalism and socialism. This type of economic system includes a combination of personal economic freedom, centralized economic planning, and government regulation. There are several advantages and disadvantages of a mixed economy.

The advantages of a mixed economy. A mixed economy provides free competition. For example, private enterprise’s presence ensures fair competition in the market, and the quality of products and services are not compromised. Next, by using a mixed economy, market prices will be well regulated. For example, the government with its regulatory bodies will ensure that the market price does not exceed its actual price. Besides that, people are given more power by having more say regarding the quality and the prices of products and services.

On the other hand, a mixed economy allows individuals to run their businesses and make profits, but at the same time, it places some responsibility on these companies by inducing them to contribute towards the welfare of society. Lastly, by having a mixed economy, there is less inequality of income because the government intends to have a balanced economic growth of an economy. That is why our country is running a mixed economy system.

The disadvantages of a mixed economy. Of course, a hybrid economic system also has several disadvantages. A mixed economy system has a natural tendency to move further and further away from reliance on competitive market mechanisms to more excellent bureaucratic controls and interventions until the system efficiency goes down to zero and the system breaks down or dictatorships get fairly established to hide inefficiencies and remove all economic and political freedom from the citizens.

Other than that, Mixed economic systems deliver neither efficiency goals achievable through a competitive market system nor bring about a fast reduction in poverty incidence and socialistic societies. This causes people can’t make their own decisions. Moreover, under a mixed economy, private enterprises have to face a lot of difficulty because of various government loopholes like favoritism and bureaucratic nature, which is prevalent in a mixed economy.

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Production Possibility Curve and Demand Curve. A production possibility curve is a graphical representation of the alternative combinations of two goods or services that an economy can produce by transferring resources from one good or service to the other. This curve helps in determining what quantity of a nonessential good or a service. A demand curve is a graph curve that slopes typically downward towards the right of the chart showing the number of goods or services demanded at different price levels.

  • Diagram of Production Possibility curve
  • A common PPF: increasing opportunity cost
  • A straight line PPF: constant opportunity cost
  • An inverted PPF: decreasing opportunity cost

Diagram of the Demand curve. In the diagram above, the original price of the good was at P1, and the quantity demanded was at Q1. An increase in price to a level of P2 has caused a contraction of demand to a level. Is it suitable that our country runs a hybrid economic system? According to my research, Malaysia is running a mixed economic system. In my opinion, Malaysia should use a hybrid economic system. It is because it contains a lot of benefits to our country.

For example, people can make their own decisions. The government has limited control, which is good for structure. It provides freedoms such as Enterprise Ownership, Social Welfare, Profit Earnings, and Political Freedom. In Malaysia, all national resources are utilized under a mixed economy, active government support and direction. That is why so far, Malaysia’s economics do not have many problems. Conclusion. In the conclusion, the degree of government interference in market economies and the increased economic freedom in command economies can be cconvertedinto one. It gives a lot of benefits to the country.

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Comparison between Command System and Market System - is there a Middle Way?. (2021, Sep 29). Retrieved January 28, 2023, from