economic system

Topics: Market economy, Planned economy, Capitalism Pages: 3 (1060 words) Published: March 16, 2014
An economic system in which economic decisions are made by the state or government rather than by the interaction between consumers and businesses. Unlike a market economy in which production decisions are made by private citizens and business owners, a centrally planned economy seeks to control what is produced and how resources are distributed and used. The production of goods and services is undertaken by state-owned enterprises. Centrally planned economies assume that the market does not work in the best interest of the people, and that in order for social and national objectives to be met a central authority needs to make decisions. The state can set prices for goods and determine how much is produced, and can focus labor and resources on industries and projects without having to wait for private investment capital.

Most modern economies are a mixture of centrally planned economies and market economies, with governments controlling some aspects of the economy and the private sector controlling others. www.investopedia.com/terms/c/centrally-planned-economy.asp‎ Introduction of Planned economy

A market economy is the opposite of a command or centrally planned economy. In a command system, the government determines what goods are sold, how much of them, and what they will cost. This single actor is replaced by many in a market system, where the price of a good is determined by both the supply and demand for it (wikinvest.com 2012). And in the following we will talk about the advantages and disadvantages of planned economy. 1.2.2 Advantages of Planned economy

1.2.2.1 Elimination of inflation and price fluctuations In command economies, the central government stipulates what and how much of most products will be produced. By setting prices and wages the central government can also dictate how much of the production is allotted to each household. In short, the central government controls production and income in command economies (Musgrave,...
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