The command economy

A command economy is characterized by what how it is regulated. The state is here to regulate the economy. It is decided by the state how much of resources are to be allocated to a production of a given good. The allocation of resources is arbitrary and chaotic here. Even the price mechanism is not that simple. In a free economy, prices are determined by the competition prevailing. But here, prices are defined by the interaction between the producers and consumers.

As the economy does not begin with the price, the planner can’t anticipate the true value of the resources to be used in the production and so allocation of resources might be inefficient and the outcome may be overproduction or underproduction. But the crucial problems, here, are not associated with the overproduction or underproduction or in fact, the unemployment too because there is no choice for the workers other than to work.

The main problem is the inefficient allocation of resources. How is it to be decided how many resources to be devoted to production of a good given that relevant information of resources not known in advance?

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