Command Economy/Planned Economy
What is Command Economy?
Command economic system can be defined as an economic system in which basic economic problems will be solved according to the commands given by the central planning authority. (not considering demand & supply ending with unsatisfied customers)
Another significant fact is majority of the property and resources owns to government where the government has the ultimate power./nCharacteristics
Other than labour rest of the resources own to government, such as capital, land entrepreneur.
Basic economic problems are solved by central planning authority.
Incentives will be more towards coercive or moral and these are not effective enough to develop.
Public entrepreneurs.
Low competition.
Less consumer powers.
More government intervene.
It will develop a country up to a certain extent and there after it will reduces the growth level.
(Ex: Countries like China, Russia, Vietnam converting their economy to market economy)
How it Operates?
Disadvantages
Cannot satisfy consumer needs and wants accurately.
(Ex: Insufficient TVs supply & excess vehicle supply)
Resources will be wasted due to misallocation as they do not consider demand & supply.
(Inefficient resource distribution: surplus and shortage in some products)
Lack of competition resulting in law quality goods & services.
(Ex: Public transport, assume that there is no private bus service)
Problem of organizing and coordination.
Lack of incentives.
Lack of innovations due to not having competition & free market where innovations are welcomed.(Centrally Planned Economies are very resistant to change)
Comment
Still Cuba and North-Korea is having a
planned economy
Planned Economy = Planned Destruction/nThis economic system is outdated and not suitable for prevailing society as they consider much about freedom, innovation, motivation, satisfaction etc./nThat is why the countries like China, Russia, Vietnam, Thailand etc. are changing their economic system to a mix economic system and they are called as transition economies.
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