Question

Describe the elements of a command economy. What problems were caused by the command economy in the Soviet Union?

Answer 1

A command economy is a system where the government, rather than the free market, determines what goods should be produced, how much should be produced, and the price at which the goods are offered for sale. It also determines investments and incomes. Central planners in a command economy are unable to rationally determine the methods, quantities, proportions, location, and timing of economic activity across an economy without private property or the operation of supply and demand. In the soviet Union the command economy suffered from problems with poor incentives for planners, managers, and workers in state-owned enterprises.