The Advantages and Disadvantages of a Command Economy or Free Market Economy

Reena Gandesha 12.1

Economics- Mr Fenn

There are many aspects and views how the government should control the economy and how much involvement they should have in the economy. In the UK we have a mixed economy which is when the government take control on various factors of the economy such as education, the National Health Service, and many others.

Countries such as Cuba, North Korea, and China have command economies which are economies based on the government controlling the activities of the economy and allocating resources. For China this has proved to be a very successful method as China has one of the fastest growing economies in the world at present. The main advantages of a command economy is that services and goods provided are for the benefit of community and not to make profit and also these services or goods are accessible to anyone. Consumers benefit largely from a command economy as they have fixed prices and as it is all government run, it is operated securely, which is very reassuring to the public as they know they will not be deceived when buying good or services. Another advantage is having a low unemployment rate as the government can provide jobs which will increase GDP along with taxation revenue.

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However, there are also disadvantages to this type of economy, the major one is that there will be no competition as everything is government owned and competition is known to lower prices and increase quality of goods and services produced, therefore meaning there will much less advance products in the economy compared to a free market economy. Workers will also have no motivation as they will be on fixed salaries which are very unlikely to be changed, therefore they will have less to work for. Also there will be a limited choice as only certain things will be produced and therefore there will be a limit response to the demand in the country, as people may not like the inelastic products such as bread, offered however they have no other choice and would have to buy them. In the most extreme cases a command economy could make the economy very controlled to the extent that people have limited choices in most aspects of life and not just goods or services bought.

An alternative to a command economy is a free market economy which like the command economy has both advantages and disadvantages. The advantages include that fact that people will have more to work for and therefore will produce more efficiently, which in turn could increase GDP. Unemployment would also be low, as in a free market economy most likely there would be no such thing as minimum wage, and therefore everyone would have to work again increasing taxation revenue. There would also be a large increase in choice and competition which would lower prices and higher quality, which is ideal for the economy as low prices would reduce or slow down inflation rates.

Disadvantages could be that a private monopoly could take over a large proportion of the market and charge very high prices, giving them a super normal profit margin. Also work is done for the benefit of firms and not for the common good and therefore it is not in the best interest of the public. There would also be a significant divided between the poor and rich as everyone would not be equal, unlike in a command economy.

Overall, I think that both types of economies have good and bad points and therefore I think a mixture of the two would be the best. In a mixed economy decisions would be split between firms and the government and planning of the economy could still be controlled by the government by enforcing different laws, such as the law that no company can own more than 25% of the media market. I believe that a mixed economy has the best of both worlds and is the best economic plan for the UK.

Peer Reviews

Here's what a star student thought of this essay

groat

26th of Feb 2012

Quality of writing

The essay is structured well, offering a balanced argument and then a justified judgement. There are a few slips in sentence structure such as "a significant divided" but for the most part spelling, punctuation and grammar are strong. I would've preferred if the first person wasn't used in the conclusion, but used sophisticated phrases such as "it is clear that" or "it could be argued".

Level of analysis

The discussion and analysis in this essay is good. The advantages to the consumers are mentioned for a command economy, however I would've added that there is less income inequality. This is due to a central allocation. A key word which this essay has missed out is "incentive". Whenever I talk about command economies, I mention that there is no incentive to train for a skilled-job, or incentive for a firm to become more efficient. This then lends itself to an evaluative comment about free market economies which are led by incentives, and so are productively more efficient. I think there needs to be some discussion of international trade here. There are very few economies which could supply everything domestically, so trade is important. In a command economy, goods are often of lower quality and so will struggle to trade internationally.

Response to question

This essay responds well to the question, offering an insight into free market and command economies and posing the limitations and benefits of each. I liked how a real-life example of each type was picked, however there is debate over whether China is now a command economy. Picking a country such as North Korea would've been a better choice.

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