10 Difference Between Market Economy and Command Economy (With Table)

What is the main difference between market economy and command economy? The former refers to where production of goods and services with their prices is determined by demand and supply forces while the latter is where all economic decisions are taken by the government.

All the economic activities are organized, managed, and coordinated by the nation’s economy framework. Examples of economic activities are production, distribution, consumption, and exchange of goods and services.

An economic system of a country consist of command economy, market economy, and mixed economy. We wrote this blog post to help you tell the differences and similarities between command economy and market economy.

Difference Between Market Economy and Command Economy With Table

Basic Terms Market Economy Command Economy
Ownership of Resources Private individuals and businesses own and control resources. Government or central authority owns and controls resources.
Resource Allocation Allocation is determined by supply and demand in the free market. Allocation is centrally planned and controlled by the government.
Production Decisions Producers make decisions based on consumer preferences and profit motives. Government authorities make decisions on what, how, and for whom to produce.
Pricing Mechanism Market forces i.e demand and supply Fixed by the government
Competition High Low to no competition
Economic Flexibility Flexible and adaptable to changing conditions and economic shifts. Less adaptable to changing economic conditions.
Incentives Individual and business incentives drive economic decisions. Incentives may not align with economic efficiency.
Growth Rate High economic growth rate Low economic growth rate
Consumer Choice Wide range of choices Limited choices
Economic Inequality Varies widely leading to income inequality Does not vary since it is government controlled.
Examples United States, United Kingdom, and Canada. North Korea, Cuba and former soviet union.

What Is Market Economy?

A market economy also called a free-market economy or capitalism, is an economic system where the allocation of resources, production, and distribution of goods and services is primarily determined by market forces.

Characteristics of Market Economy

  • Businesses are motivated by the pursuit of profit.
  • Privately owned by individuals or corporations.
  • Competition is a fundamental driver of a market economy.
  • Consumers have the freedom to choose what goods and services they want to buy.
  • Prices of goods and services are determined by the interaction of supply and demand.

What Is Command Economy?

A command economy also called planned economy or socialism. It is an economic system in which the government or a central authority exercises extensive control and decision-making power over the allocation of resources, production, distribution of goods and services, and economic planning.

Characteristics of a Command Economy

  • Competition among producers is limited.
  • The government sets prices for many goods and services.
  • Strive for income equality by redistributing wealth and resources.
  • Economic planning is centralized and carried out by government authorities.
  • The government or state ownership plays a dominant role in major industries.
  • Consumers have limited choices regarding the goods and services they can purchase.

Main Difference Between Market Economy and Command Economy

  1. Market economy is where goods and services flow freely based on demand and supply. Command economy is where government owns and controls production factors and output distribution.
  2. Market economy uses demand and supply forces to set prices. Command economy is where the government set and control prices.
  3. Market economy is private ownership while command economy is public ownership.
  4. Market economy experiences higher economic growth and living standards than command economy.
  5. Market economy has unequal income distribution while command economy promotes income equality.
  6. Market economy aims for profit while command economy focuses on societal welfare.
  7. Market economy consists of consumer and factor markets while command economy composed of central planners.
  8. Market economy is where consumers have free work choice while command economy is where government-controlled work and wages.
  9. Market economy individuals ensure security while command economy government provides economic security.

Similarities Between Market Economy and Command Economy

  • Both are economic systems.
  • Both allocate resources to produce goods and services.
  • Both aim to meet the needs and wants of their populations.
  • Both involve some level of government regulation and oversight.
  • Both rely on incentives to drive economic activity.
  • Both have a significant impact on wealth and resource distribution in society.

Final Thoughts from Experts

The main difference between market economy and command economy are defined by the core principles of these economic systems. While a market economy thrives on private ownership, competition, and the free interplay of market forces, a command economy is characterized by government ownership, central planning, and a focus on income equality.

These distinctions not only shape economic landscapes but also have far-reaching implications for resource allocation, production, pricing, and the distribution of wealth and opportunities within a society.

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