Question

10. Strengths and weaknesses of the three basic types of economies

Imagine you are a consultant who has been asked to summarize the strengths and weaknesses of Directavia, a nation with a pure command economy.

Which of the following would you include in your report as weaknesses of Directavia's economy? Check all that apply.

___ Workers' earnings are unequal, relative to a market economy.

___ Because government is responsible for all production, the variety of products tends to be limited.

___ Firms have no incentive to produce the so-called public goods, such as national defense, because private firms cannot prevent nonpayers from enjoying the benefits of public goods.

___ Because nobody in particular owns resources, each person has less incentive to employ them in their highest-valued use, so some resources are wasted.

Answer 1

Command economy is an economic system where all factors of productions are owned and controlled by the government.

It is the government that decides what goods to produce and in what quantities, how to produce goods and for whom to produce goods.

This total control over production by government results no independent private enterprise and due to this there is no incentive on part of anybody in the economy to utilize resources in most efficient manner resulting in wastage or underemployment of resources.

Secondly, the quanlity of goods are low because there is no competition and variety of goods is also less as government rather than market cater to demand.

So,

The correct answers are as follows -

2. Because government is responsible for all production, the variety of products tends to be limited.

4. Because nobody in particular owns resources, each person has less incentive to employ them in their highest-valued use, so some resources are wasted.