AP ECONOMICS Topic : Planned economy | features, advantages and disadvantages

Planned Economy

In a planned economy, the factors of production are owned and managed by the government. Thus the Government decides what to produce, how much to produce and for whom to produce.

Features:

• All resources are owned and managed by the government.
• There is no Consumer or producer sovereignty.
• The market forces are not allowed to set the price of the goods and services.
• Profit in not the main objective, instead the government aims to provide goods and services to everybody.
• Government decides what to produce, how much to produce and for whom to produce.

Advantages

• Prices are kept under control and thus everybody can afford to consume goods and services.
• There is less inequality of wealth.
• There is no duplication as the allocation of resources is centrally planned.
• Low level of unemployment as the government aims to provide employment to everybody.
• Elimination of waste resulting from competition between firms.

Disadvantages

• Consumers cannot choose and only those goods and services are produced which are decided by the government.
• Lack of profit motive may lead to firms being inefficient.
• Lot of time and money is wasted in communicating instructions from the government to the firms.

Examples of Planned economies

• North Korea
• Cuba
• Turkmenistan
• Myanmar
• Belarus
• Laos
• Libya
• Iran
• Iraq (until 2003)