Disadvantages of Command Economy

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Questions and Answers

What is a result of the price mechanism being unable to operate?

Higher productivity
Efficient allocation of resources
Shortages and excess supply (correct)
Increased competition

What is the impact of a lack of competition in a command economy?

Inefficiency and low productivity

In a command economy, there is an abundance of choice for products and jobs.

False (B)

Lack of financial incentive occurs because wages are _____ and there is no incentive to work hard.

<p>fixed</p> Signup and view all the answers

Why do command economies tend to underperform?

<p>Economic growth and living standards grow at a slower rate, leading to issues such as the collapse of the Soviet Union in the 1990s.</p> Signup and view all the answers

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Study Notes

Disadvantages of a Command Economy

The price mechanism's dysfunction leads to misallocation of resources, creating issues such as shortages and excess supply.
A lack of competition in command economies results in inefficiency and lower productivity levels, reducing overall economic performance.
Workers face limited choices regarding available products and employment options, which can lead to dissatisfaction and reduced motivation.
Fixed wages diminish financial incentives; without the potential for increased earnings, individuals may lack motivation to work diligently or innovate.
Command economies typically experience slower economic growth and lower living standards; this stagnation contributed significantly to the collapse of the Soviet Union in the 1990s.