Class XI

Economics
▪ A planned economy (also called a command economy) is
an economic system in which a government or ruler makes
most or all of the important decisions about the production
and distribution of goods and services.
▪ In a planned economy central planners (rather than
tradition or market forces) decide most matters of
production and distribution. This means that they
determine what goods and services should be produced
and made available (from aeroplanes to bicycles, medical
care to haircuts, houses to paper clips) and in what
amounts.
▪ Central planners also determine, for example, whether
these and other items should be produced by hand or by
machine, in what part of the country they should be
produced, and how they should be transported from the
place they are manufactured to the place they are
purchased.
▪ Finally, central planners determine who (a ruling party, all
of society, certain classes of society, a religious group)
should have access to the products and receive the benefits
of the economic activity.
▪ Associated with Maxist-Leninist government such as the
Soviet Union, North Korea and East Germany.
▪ After WWII, many socialist countries chose to adopt
Planned Economy in order to focus resources on
government priorities that may not be adequately served
by market forces alone.
▪ All resources are owned and managed by the government.
▪ Every one deemed equal.
▪ The market forces are not allowed to set the prices of goods
and services.
▪ Profit is not the main objective, instead the government
aims to provide goods and services to everyone.
▪ The government decides what to produce, how much to
produce and for whom to produce.
▪ Reduces monopolization ( illegal monopoly)
▪ Priorities welfare
▪ Greed is removed from business
▪ Elimination of all private properties and distribute its
goods equally
▪ Provides equal health care and education opportunities.
▪ Very stable
▪ Price control
▪ More equal distribution of income and wealth.
▪ Restriction of freedom career
▪ Less innovation, no competition
▪ Don’t have opportunities to decide what they want to do
▪ Risk of corruption
▪ Lack of freedom
▪ Innovation difficult
▪ Overproduction/ underproduction of certain goods and
services
▪ Dictatorship ( Stalin, Kim )
▪ Health care is free
▪ Life expectancy is higher than that of the US ( 72.5 vs 71.9 )
▪ 1950’s cars
▪ No major cooperation and billboards ( Apple and
Macdonald’s )
▪ Restriction on freedom speech
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