HV

Module 2 unit 2

Unit 2: Planned Economy

Definition and Characteristics

  • A planned economy is characterized by the government owning most resources, including:

    • Factors of production: The government controls all resources and sets output targets for various sectors.

    • Resource Allocation: The government determines and allocates the necessary resources to meet these targets.

    • Income Distribution: Income levels tend to be similar across the population.

Purpose and Structure

  • The primary aim of a planned economy is to ensure that everyone lives comfortably.

  • In this system:

    • Factors of production are utilized to achieve the government’s economic objectives.

    • Centralized planners hold the power to control production factors and decide which goods and services are necessary.

Types of Planned Economies

Synonyms

  • Planned economy is often referred to as:

    • Command economy

    • Communist economy

Examples

  • Countries that exemplify planned economies include:

    • Cuba

    • North Korea

    • Saudi Arabia

    • Belarus

    • Myanmar (Burma)

Economic Decision Making

  • An economic system in a planned economy makes crucial decisions regarding:

    • What is produced

    • How it is produced

    • How products are distributed

  • The government plays a central role in making major economic decisions, idealized as better positioned to meet citizens’ needs due to access to comprehensive information.

Governance and Control

Stability and Control

  • A planned economy provides:

    • Stability: Control over all resources and production factors can offer stability.

    • Risks: However, excessive control can also hinder economic growth and development if not managed correctly.

Production Planning

  • For effective resource allocation, the government must:

    • Conduct surveys to understand human needs and consumer wants.

    • Control all production factors and systems of distribution.

    • Regulate imports and exports, managing trade overseas.

Advantages and Disadvantages of a Planned Economy

Advantages

  • No Unemployment: Full employment is maintained.

  • Stability: The economy experiences stability, with no business cycles or unemployment.

  • Equal Wealth Distribution: Resources are shared among the population, aiming for equality.

  • Universal Services: Services are available to all citizens.

Disadvantages

  • Limited Freedom of Choice: Individuals have little to no consumer choice.

  • Profit Inhibition: There is no profit incentive driving the economy.

  • Government Ownership: The government owns all economic resources.

  • Declining Productivity: Lack of competition can lead to reduced productivity.

  • Restricted Career Options: Employment opportunities are limited.

  • Potential Growth Stagnation: If not carefully managed, government control can stunt economic growth.