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Market Economy Vs Command Economy

Generally, there are two fundamentally different ways of organizing an economy. Market and Command Economy.

A market economy is one in which individuals and private firms make the major decisions about production and consumption. In a market economy, decisions are made in markets, where individuals and enterprises voluntarily agree to exchange goods and services, usually through payments of money. A system of prices, of markets, of profits and losses, of incentives and rewards determines the what (profits), the how (costs) and the form whom (reward for inputs). [Laissez-faire economy]

A command economy is one in which the government makes all important decisions about production and distribution. In a command economy, the government owns most of the means of production; it also owns and directs the operations of enterprises in most industries; it is the employer of most workers and tells them how to do their jobs; and it decides how the output of the society is to be divided among different goods and services. In short, in a command economy, the government answers the major economic questions through its ownership of resources and its power to enforce decisions.

No contemporary society falls completely into either of these extremes. Rather, all societies are mixed economies, with elements of market and command economies.

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