Question

2. How does the fact that a government’s decisions under a command-and-control system are heavily influenced by political considerations affect its answers to the three basic economic questions?

Answer 1

The three basic questions in economics are:

1. What to produce

2. How to produce

3. For whom to produce

In a market economy, these central questions are resolved by the market forces as the resultant force of the combined interactions of various agents in the market determine what to produce, how to produce and for whom to produce. However, in a command-and-control system, these the central authority determines what to produce, how to produce and for whom to produce. In a market economy, production happens according to the demand of the consumers. However, in a command-and-control system, production happens according to the plan of the central authority, which may not be in line with the market demand. Similarly, in a market economy the 'how to produce' is resolved by the cost alternatives of various production methods. The market economy produces using the most efficient way. However, in a command-and-control system, the production is inefficient as production happens to keep political considerations in mind to create jobs or maintain a wage level, etc. Thirdly, in a market economy goods are produced for consumers who want to and able to pay for it. In a  command-and-control system, the government interferes into the allocation of goods through rationing, price control, etc.