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.