An economic system in which the government makes all economic decisions is referred to as a command economy or a planned economy. In this system, the central authority, typically the government, controls the production, distribution, and pricing of goods and services. Unlike a market economy, where supply and demand dictate prices and production, a command economy relies on government planners to make these decisions.
The primary purpose of this system is to achieve specific socio-economic objectives, such as equitable distribution of resources, rapid industrialization, or improvement in public welfare. However, while it can enable the government to mobilize resources quickly and direct them towards fulfilling national goals, it often faces criticism for inefficiency, lack of innovation, and poor responsiveness to consumer needs.
One of the most notable examples of a command economy was the former Soviet Union, where the government owned and controlled all means of production. While there are various degrees of government involvement in different countries, the core characteristic of a command economy remains: the government’s dominant role in economic decision-making.