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.
- 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.
- 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.
- 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
- Iraq (until 2003)