Difference between market economy and command economy

Introduction

In the world of the economy, there are various systems to carry out commercial transactions and satisfy the needs of consumers. Two of the most important systems are the market economy and the command economy. Both have distinctive characteristics that differentiate and define them. Next, it will be explained what these two types of economies are about.

Economía de mercado

The market economy is an economic system that is based on the supply and demand of goods and services. That is, the prices and quantities produced are determined by the decisions of the consumer and the producer, without any intervention from the State. In this system, resources are managed by companies and people, with the aim of maximizing their economic benefit. The market economy is considered to be based on free competition and individual freedom.

Characteristics of the market economy

• The State does not intervene in economic activities.
• Competition is essential.
• Consumption and production decisions are made by individuals and companies.
• Efficiency and optimization of resources are sought.
• The freedom of individuals to make their own decisions is promoted.

Economía de mando

The command economy is an economic system that is characterized by the centralization of decision-making in the State. That is, it is the State that determines the production, distribution and price of goods and services. In this type of economy, the objective is not to maximize economic profit, but to satisfy the needs of society. Furthermore, in the command economy, resources are managed and controlled by the State.

Characteristics of command economy

• The State controls all economic activities.
• There is no free market.
• Production and consumption decisions are determined by the State.
• The objective is not to maximize economic profit, but to satisfy the needs of society.
• There are no incentives for innovation and efficiency.

Differences between market economy and command economy

As you can see, there are several differences between the market economy and the command economy. Below are some of the most notable ones:

• Control: In the market economy, companies and individuals are in control, while in the command economy it is the State that is in control.
• Libertad: In the market economy there is individual freedom to make decisions, while in the command economy there is no market freedom.
• Goals: In the market economy, the goal is to maximize economic benefit, while in the command economy, the goal is to satisfy the needs of society.
• Centralización: In the market economy there is no centralization, while in the command economy all decision-making is centralized in the State.

Conclusion

In short, the market economy and the command economy are two completely different economic systems. Each of them has their own advantages and disadvantages, and adapt to the needs and characteristics of each society. However, it is undeniable that the market economy, with its free market and competition, has proven to be a system that has driven economic growth and social progress in many parts of the world.