How is the allocation of goods and services production determined in a command economy?
Businesses decide what to produce on the basis of market conditions.
Consumers decide through their behavior in the marketplace.
Central government planning decides what will be produced.
Supply and demand control production and price.
Central government planning decides what will be produced.
In a command economy, the allocation of goods and services production is primarily determined through central government planning. The government decides what will be produced, how much will be produced, and who will receive the goods and services. This is in contrast to a market economy, where businesses decide what to produce based on market conditions and consumers determine allocation through their behavior in the marketplace. In a command economy, supply and demand play a minimal role in controlling production and price, as the government's central planning overrides market forces.
In a command economy, the allocation of goods and services production is primarily determined by central government planning. Here's how it works:
1. Central Government Planning: In a command economy, the government exercises significant control over economic decisions, including what goods and services will be produced and in what quantities. This is typically achieved through central planning agencies that set production targets and allocate resources accordingly.
2. Government Priorities: The central government determines its priorities and objectives for the economy. It considers factors such as national goals, social needs, and long-term development plans when making decisions about production targets. Government officials and central planners analyze various data and information to effectively allocate resources.
3. Resource Allocation: Once the government establishes its priorities, it allocates resources to different sectors of the economy based on its assessment of needs and demands. This involves distributing inputs such as raw materials, labor, and capital to businesses and industries according to the government's production plan.
4. State-Owned Enterprises: In a command economy, many businesses and industries are owned and operated by the state. These state-owned enterprises (SOEs) typically follow the government's production plan and receive resources and instructions from the central planning agencies. The government can directly influence their production decisions to align with its overall objectives.
It's important to note that in a command economy, the role of market forces, such as supply and demand, is generally limited compared to market-based economies. While supply and demand can still influence some aspects of production and price, the centralized planning system takes precedence in determining the overall allocation of goods and services.