Question

1) Recognizing the importance of private ownership of resources, competition, self-interest, etc. embodied in the market system, explain the demise of the command system.

2) Based on the fact that in a command system, the government owns most property resources, while in a market system that is characterized by the private ownership, use the United States and the Soviet Union as an example, and answer the government’s role under the two different economic systems.

3) List two countries that currently still largely rely on the command system, and another two countries/economies used to adopt the command systems.

4) Explain the importance of private ownership of resources in the market system.

Answer 1

(1) Once ownership of resources is accessible for the private firms also, it will mean they can also take important decisions on what to produce, how to produce, amount of saving and investment. Private firms have Profit-making as the primary motive whereas in command system Service-motive is the main motive. Because of this reason Command system lacks incentive to use the resources efficiently and to full maximization to use, whereas private individuals will be in constant pressure to use and allocate the resources to maximum efficiency to reduce cost of production and to increase profit.

Secondly, Competition is one of the important pillars of economic efficiency. It ensures that the value and variety of goods and services offered to consumers are better. In command system, The Government being the sole owner, there is no competition.

Thirdly, Each individual is guided by self interest in his economic pursuits. It works as a motivating force but in command system, there is an absence of proper incentives like profit or higher wages, promotion etc.

(2) In the U.S. which is a capitalistic economy, the government has the least interference in economic activities and in the working of market forces. The producers and consumers can freely take their decisions.

Whereas in Soviet union, all important decisions are taken by the central planning authority. Economic and political power is concentrated in the hands of the Government.

(3) North Korea and Cuba still largely rely on the command system.

China and Russia used to have command system earlier.