Warm-Up Activity #7-2
Command Economies vs. Market Economies
In a command economy, the government controls most of the economic decisions. The belief in a
command economy is that the government needs to make sure the wealth is distributed equally amongst
the citizens. For example, if one company has a monopoly over a product that the public demands, the
company can set the price as high as demand will allow. In a command economy, the government sets up
anti-trust laws to break up these monopolies in order to spread out the wealth. This prevents some from
becoming very rich and others from being very poor. In a command economy, the feeling is that if all
citizens have access to money and services, they will be more willing participants within the society.
Within a command economy, the government holds most of the property rights and decides how the land
will be used to better help the economy. This type of system is called “command” because the
government issues commands on what should happen, how things should happen, and who should do
things related to the economy. In nations with command economies, the governments own and manage
most natural and capital resources. Government officials, aided by economists, engineers, and
technicians, prepare detailed plans describing how the economy should function. Essentially, the planners
determined what goods and services to produce. The planners control many of the workers’ rights, decide
on wage increases, and issue orders on work locations. For example, if workers are unhappy with work
conditions or wages, the government will help the business and workers come to an agreement without a
strike. Many command economies will limit imports from other countries in order to promote similar
products made by businesses in their country. For example, the government will put a tariff tax on goods
imported from other countries to make them cost more than in-country products. This also allows the
government to control the prices of the products being sold. Finally, in a command economy the
government will usually step in to help, if a business is struggling. The help will usually come in the form of
a subsidy, like cancelling their taxes. This is meant to encourage the continued existence, growth,
development, and profit of the business.
In a market economy, the private sector is allowed to function nearly, if not completely free, of
government regulations. The belief is that within a free market economy there will be competition. Using
the example above, if one company has a monopoly over a product that the public demands, the
company can set the price as high as demand will allow. In a market system, the belief is that the
competition system should cause new businesses to develop to challenge the monopoly. The competition
for sales will keep prices low and quality high. In a market economy, the private sector holds most
property rights and decides for themselves how they want to use their land. Under this system the natural
and capital resources are owned by individuals and businesses. They use supply and demand to determine
how the resources will be used and what will be produced. The businesses make the decisions on what
prices will be based on competition within the market. Competition also determines pay level for workers.
However, if workers feel conditions and wages are unfair, they may strike (refuse to work). This can put
pressure on the economy because, during a strike, neither the workers nor the business make money.
Many market economies allow imports to help lower prices and increase competition for quality goods.
However, if other countries can produce and sell an item for less money, the in-country businesses will
have to lower prices and wages in order to compete on the world market. This might mean that some
businesses, that can’t compete, might go out of business, leading to lost jobs.
Directions: Using the reading above as a resource, select the characteristic that best fits with how a command economy
and a market economy will deal with each economic category. Then match the real life examples with the proper category
and type of economy.
Command
Market
Natural Resources
Choose an item.
Choose an item.
Real Life Example
Choose an item.
Choose an item.
Income
Choose an item.
Choose an item.
Real Life Example
Choose an item.
Choose an item.
Production
Choose an item.
Choose an item.
Real Life Example
Choose an item.
Choose an item.
Trade
Choose an item.
Choose an item.
Real Life Example
Choose an item.
Choose an item.
Prices
Choose an item.
Choose an item.
Real Life Example
Choose an item.
Choose an item.
What is the overall goal of your government?
Choose an item.
What will be the overall goal of your economic system?
Choose an item.
Making Connection: what economic system do you feel best fits with the style of government you have on your island?
Use 1 piece of evidence from the reading and one from the chart above to support your opinion. L3RJ