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In a command economy, the government determines production levels and sets prices. This is said to be advantageous because it prevents unscrupulous investors from taking advantage of consumers. Free market advocates such as Milton Friedman have criticized the command economy on the grounds that centralized planning ignores the price signal and is therefore ineffective. Cited from the diploma of Erzsébet Fegyver, and Peter Nagy. In a similar manner, the idea of a command economy has been criticized because of inherently large transaction costs associated with costs of distribution. A good example is the Soviet Union which suffered many shortages and inefficiencies due to beaurocratic oversight and neglect. This idea may be attributed to Ronald Coase who predicted the downfall of the Soviet Union because of insurmountable transaction costs.

See:

• Planned economy