Societies organize their economies in two main ways to answer the three questions of what, how, and who, A society can have a \( \square \) economy in which the government decides how economie resources will be allocated. Or a society can have a \( \square \) eoonomy in which the decisions of households and firms interacting in markets allocate economic resources.

A society can have a **command** economy in which the government decides how economic resources will be allocated. Or a society can have a **market** economy in which the decisions of households and firms interacting in markets allocate economic resources. ### **Command Economy** - **Definition:** In a command economy, the government has significant control over the production and distribution of goods and services. - **Allocation:** The government determines what goods and services are produced, how they are produced, and who receives them. - **Examples:** Historical examples include the Soviet Union and North Korea. ### **Market Economy** - **Definition:** In a market economy, decisions about production and distribution are driven by the interactions of individuals and businesses in the marketplace. - **Allocation:** Prices are determined by supply and demand, and resources are allocated based on consumers' and producers' preferences and spending. - **Examples:** The United States and many Western countries operate primarily as market economies, though they may incorporate some government intervention. ### **Key Differences** 1. **Decision-Making:** - **Command Economy:** Centralized by the government. - **Market Economy:** Decentralized, driven by individual choices. 2. **Efficiency:** - **Command Economy:** Can suffer from inefficiencies due to lack of competition and profit incentives. - **Market Economy:** Often more efficient due to competition and the pursuit of profit fostering innovation. 3. **Flexibility:** - **Command Economy:** Less adaptable to changes in consumer preferences or external shocks. - **Market Economy:** More adaptable and responsive to changes in the environment. Understanding these two economic systems helps in analyzing how different societies organize their resources and address fundamental economic questions.