Market Economy vs Command Economy
Market Economy and Command Economy are two Economic Systems & Schools of Thought concepts in AP Economics that students often mix up. In short: market economy is a market economy is a system in which production and prices are determined by the free interaction of supply and demand. Meanwhile, command economy is a command economy is a system in which the government, not markets, decides what to produce, how, and for whom. Here is how they compare side by side.
A market economy is a system in which production and prices are determined by the free interaction of supply and demand.
Decisions are decentralized: buyers and sellers responding to prices coordinate the economy, as if by an 'invisible hand.' It contrasts with a command economy. Pure market economies are rare; most are mixed.
A command economy is a system in which the government, not markets, decides what to produce, how, and for whom.
Central planners set output targets and prices instead of relying on supply and demand. It can mobilize resources quickly but often suffers shortages, surpluses, and weak innovation due to missing price signals. The former Soviet Union is a classic example.