1.4.2 Planned Economy

Question 1

Meaning of planned economy

Answer 1

A type of economic system whereby resources are allocated by the government through a planning
Process

Question 2

Characteristics of planned economy

Answer 2

1. Public ownership
   - all factors of production apart from labour are owned by the state or government
2. Motivation
   - Consumers, workers and government are all assumed to be selfless, cooperating together to work for the common good
3. Centralized planning
   - Allocation of resource are through a centralized planning process.
   - State will direct labour into jobs as well as directing consumers what to consume

Question 3

Advantages of planned economy

Answer 3

1. Equal distribution of income and wealth
   - Government allocate resources more evenly to reduce inequality
   - Ensure everyone’s enjoys a minimum standard of living

2.Focus on social welfare
- Government would allocate resources to maximise social welfare such as public healthcare and protecting the environment

3. No exploitation
   - Privately owned monopolies are unable to exploit workers and consumers

Question 4

Disadvantages of planned economy

Answer 4

1. Lack of efficiency and innovation
   - Resources may not b e used in the most efficient manner
   - Workers lack of incentives to work and their absence of competition results in lower rate of development
2. Bureaucratic inefficiencies
   - Centralized decision asking can lead to large bureaucracies that are slow
   - prone to corruption

Question 5

Allocation of resources under market economy

Answer 5

1. What to produce?
   - The government decides what to produce based on what they feel the nation needs
2. How to produce
   - The government decides techniques to produce
   - They trend to use labour intensive production to protect welfare of people
3. For whom to produce
   - Goods and services are distributed evenly to all members of society