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You are here: A-Level Economics Basic Economic Ideas Revision Notes Planned economy | features, advantages and disadvantages

Planned economy | features, advantages and disadvantages

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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)

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