A command economy is an economy in which the government plans all aspects of production, resource usage, and the prices at which goods and services will be sold. Because of the centralized control, there is no competition between firms. The intent behind this system is to enhance social welfare while also ensuring that everyone is employed. Also, the government can plan the operations of the economy to match its overall strategic goals for the country. Thus, if the government wants the country to industrialize rapidly, it can focus the economy on building more manufacturing facilities.
This approach has been used by communist regimes in the past, most notably the Soviet Union. However, the command economy proved to be too difficult to administer, resulting in a combination of severe shortages and massive surpluses. Also, an underground economy usually appears that profits from the inefficiencies caused by the system. Modern countries espousing communist principles typically allow market forces to drive production and set prices, while focusing on more general economic goals.
A command economy is also known as a planned economy.