How do command economics and market economics help solve the economic problem?

Answer 1

The three questions of any economy are:

What to produce

How to produce it

and For whom to produce it

In a command economy, the government or central planning decides all three answers.

In a market economy, the producers decide what and how and the consumers (based on prices and their demand) decide for whom by buying the products.

Also, there are 6 social goals of economic systems:

growth - GDP

equality - does everyone have equal opportunities?

stability - Does the economy change at a reasonable pace or is there a lot of inflation or deflation?

freedom - do people have opportunities to enter and exit the market as workers or producers?

security - how is unemployment? Do workers and businesses have something to fall back on in times of need?

efficiency - have well are resources being used?

A command economy is wonderful with equality, and security. Ideally, it is also efficient because the central planning figures out the best way for resources to be used for the good of all, but that's not usually what happens. A command economy is bad at freedom, since the central planning decides who works where, produces what, and gets to buy what. Growth depends on the country and circumstances as does stability.

A market economy is wonderful with freedom, because in a true market economy there are no barriers to entry into the market. Security and equality are low because the gov't doesn't set up any safety nets and income is entirely based on success and failure on the market. Efficiency is fairly high because businesses want to get the most out of their resourses, but businesses don't care about social benefit, only private benefit, so they are as efficient as it takes to make the highest profit. As with command economies, growth and stability depend on the country and circumstances.