Final answer:
A command economy is where the government answers the essential economic questions of resource allocation, production, and distribution. Market economies, on the other hand, rely on the forces of demand and supply, and decisions are made by individuals and businesses.
Step-by-step explanation:
A command economy is an economic system in which the basic questions of what to produce, how to produce, and for whom to produce are resolved by primarily governmental authority. In this system, the government largely determines the allocation of resources, what goods and services are to be produced, and the methods of production. It also decides on the distribution of output.
In contrast, a market economy is driven by individual consumers and businesses based on supply and demand. In this type of economy, businesses decide how to produce goods and services, and consumers determine who receives them by their ability to purchase these goods and services.
Key Differences Between Command and Market Economies
- In a command economy, the government plays a significant role in directing production and setting wages, often resulting in similar wages for different types of work.
- In a market economy, private ownership of resources is prevalent, and decision-making is decentralized. Market forces such as demand and supply dictate economic outcomes.