Command economy

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Advertisment from the German Democratic Republic, telling people to eat carp at New Year's Eve .
A German poster from World War I, telling people to use less soap, because it is made from the scarce oils and fats. Ideas include to not hold the soap under water, and to not throw away small pieces of soap.

A command economy is when government makes decisions, or a planned economy, is an economic system where the main economic decisions (such as allocating scarce resources like labour, capital, soil and natural resources) are taken by a central body; which is usually the government. This system contrasts that of a market economy where all the economic actors involved take decisions. The benefit of a planned economy is that the planning body has perfect information, and can make a better decision than in the market economy.

Friedrich August von Hayek, a 20th century economist pointed out that it is not possible for the planning body to have perfect information. For this reason, the decisions taken by this body will be wrong, as it is not possible to foresee all parameters. Once the decision has been taken there is only a small margin to vary the production; this means that a planned economy cannot adapt to a change as rapidly as a market economy. According to Ludwig von Mises, there is no competition, and there are no reasons to innovate or to look for different solutions to a problem, in a planned economy.

Communism is a type of government system that would use a command economy. Countries with a command economy include Burma, Cuba, Iran, Libya, and North Korea.[source?]