Question

Explain the two major economic problems with command economies and why market economies avoid such problems.

Answer 1

Two major problems with command economies are inefficiency , shortages or surpluses , less freedom.

In command economies Firms and industry are owned and managed by government. Government give less incentive to be efficient and profitable . Governemnt usually have poor information about what to produce and unable to respond to consumer prefernces. But in market economies, Firms owned by private sector and there are no price contorls, price can be determined by the demand and supply. So, it generates efficient outcome.