This concept also determines the major difference of the two economic systems which is who owns and controls the physical capital, in other words, who determines the allocation of resources. In a command economy as mentioned before this is entirely the role of the government and in a market economy this is done by private parties.
(In a mixed economy this role is, depending on the country, more or less equally divided between the government and private parties.)
Command economies can also be called centrally planned economies, as a country’s government, not being satisfied with the efficiency and/or fairness of allocating resources, has there decided to do all the planning itself.
This seems to be quite a good goal, as their aim is to allocate resources and distribute wealth equally and fairly where otherwise there would not be enough for everyone.
The government sets a target (a plan) of what should be produced in a certain period of time, in order to cover the basic needs of the people. They sometimes have to set prices to regulate and to control demand to be able to match the planned supply.
However command economies (or CPEs) do not consider human behaviour in consideration of the impossibility of satisfying demand. Also , with everyone being treated equally no matter how much one is working for the plan, the people are losing the interest in considering quality. A good example for that is the production of the Trabant (Trabbi, Car) in the GDR.
As said before, the market economy is the complete opposite of the command economy. It does not involve any form of planning. However there is no such thing as a pure market economy. Therefore there is no economy in the world that does not involve planning of any kind.
Most countries in the world today have the mixed market economy. Those are primarily countries with a heavy reliance upon the market as a resource allocator. Planning is here often used for the public sector, including defence, health care, education and transportation. A name for a certain extend of government intervention, only giving the rough direction for an economy is ‘indicative planning’. The role of the government is limited and the basic structure of the economy is taken as given. A mixed market economy involves competition.
The command economy system was and is usually used in socialist/communist societies to get scarcity of life essential goods to a minimum. Items are scarce when the supply of a good or service does not satisfy the demand. Scarcity exists because human wants for goods and services exceed the quantity of goods and services that can be produced using all available resources.
This definition proves that it is absolutely crucial in a society to find a way of allocating resources. It only remains to argue which way is the most efficient and the best for a country. All economic theories (and societies) have an explanation of how resources are allocated and therefore how production of goods and services are produced and consumed.
A pure market economy (that does not really exist) can well claim to be the probably most efficient allocating system, however it can not claim to be an equitable or fair rationing system.
Time has shown that a centrally planned or command economy usually does not succeed. A good example for that is the former Soviet Union.
Therefore the conclusion to the essay question is that a mixed market economy until now is the most efficient one in allocating scarce resources. It combines the advantages of a free market coming from the market economy with the advantages of social security and justice coming from the command economy. It is hard to say how big the role of the government should be but planning should always ensure the basic life essentials.