Difference Between Free Market Economy and Command Economy

Main Difference

The main difference between the Free Market Economy and the Command Economy is that Free Market Economy is controlled by the private members, whereas the Command Economy is in the control of the government.

Free Market Economy vs. Command Economy

The economy is divided into four different types, i.e., the market economy, traditional economy, command economy, and mixed economy. All these types have different weaknesses and strengths. The type of economy that is controlled by the private owner is known as a free-market economy; on the other hand, the type of economy that is controlled by the government is known as the command economy. Both these types of economies play their role just like general economic players such as producers and consumers, money and labor and goods and services, etc. Their goal is to deliver goods and services demanded by the citizens. In a free-market economy, several individuals made a decision such as sellers, buyers, and intermediaries, etc. on the flip side, in command economy decision is made by the authorized government.

Moreover, the government has little effect on the economic activities in the free market economy, whereas economic activities in the command economy are fully controlled by the government. The free market economy is based on a division of labor while there is no division of labor in command economy. Ownership of land and resources in a free-market economy are with individuals or firms while all the resources are owned by the government in a command economy. The free market economy sets the price of goods and quantity of output according to the demand and supply on the other side; in a command economy, price and quantity of output are decided by the government.

The free market economy provides the customer with a higher choice of goods available, whereas; command economy provides the customer with less choice because it is decided by the government. Income distribution is not similar in a free-market economy because distribution of goods is decided by the firm themselves whereas, there is equal or fair enough income distribution in the command economy because here the distribution of goods is decided by the government.

Comparison Chart

Free Market EconomyCommand Economy
A kind of economy that is controlled by the private sector is known as a free-market economy.A kind of economy that is controlled by the government is known as the command economy.
Decision Making
Here several individuals are involved in decision making, such as sellers, buyers, and intermediaries, etc.In a command, the economic decision is made by the authorized government.
Role of Government
The government has little effect on the economic activities in a free-market economy.Here economic activities are fully controlled by the government.
Ownership
Ownership of land and resources in a free-market economy is with individuals or firms.All the resources are held by the government.
Price
The free market economy sets the price of goods and services according to demand and supply.In a command, economy price is decided by the government.
Quantity
The demand for goods decides the quantity of output.The quantity of output is decided by the government.
Division Of Labour
A free-market economy is based on the division of labors.The command economy does not have a division of labor.
Choice Of Goods
It provides the customer with a higher choice of goods available.The command economy provides the customer with less choice because it is decided by the government.
Distribution Of Goods
The distribution of goods is decided by the firm.The government decides the distribution of goods.
Income Distribution
Income distribution is not similar in a free-market economy.There is equal or fair enough income distribution in the command economy.

What is the Free Market Economy?

A free-market economy is a system with minor or no government regulation where the prices of goods and services are decided by the buyers and sellers. The sellers and buyers do their transactions according to the agreements that they have made on the quantity and price of a good or service. The quantity and price of goods are decided according to demand and supply.

What is the Command Economy?

A command economy is a system in which economy is fully controlled by the government. The centralized economy is the other name for the command economy. The pricing of goods and services, distribution of goods, labors, and quantity of output, etc. all are controlled by the government. The command economy has state-owned as well as privately-owned units that are controlled by government rules and regulations. According to the level of intervention, the government may also assign people to different jobs. In a command economy, people in power for example politicians, etc. give orders to sellers, buyers, and investors, and the government will itself check the equilibrium. Cuba, the former Soviet Union, and North Korea are examples of countries with command economies.

Key Differences

  1. A kind of economy that is controlled by the private sector is known as a free-market economy, whereas a type of economy that is controlled by the government is known as the command economy.
  2. A free-market economy is based on the division of labor while; there is no division of labor in a command economy.
  3. In a free-market economy, several individuals make the decision such as sellers, buyers, and intermediaries, etc. on the other hand, in command economy decision is made by the authorized government.
  4. The government has little effect over the economic activities in the free-market economy conversely, in a command economy, the economic activities are fully controlled by the government.
  5. The free market economy sets the price of goods and services according to the demand and supply on the flip side, in command economy price is decided by the government.
  6. Income distribution is not similar in a free-market economy because the distribution of goods is decided by the firm themselves whereas, there is equal or fair enough income distribution in the command economy because here, the distribution of goods is decided by the government.
  7. In a free-market economy, demand for goods decides the quantity of output, but, the government decides the quantity of output in the command economy.
  8. Ownership of land and resources in the free-market economy are with individuals or firms; on the other hand, all the resources are owned by the government in a command economy.

Comparison Video

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Conclusion

From the above discussion, it is summarized that free-market economy and command economy are two types of economic systems in which free-market economy is controlled by the private sector with minor or no government intervention whereas, a command economy is fully controlled by the government.