Explain the differences in the features of a market economy and a planned economy

    Motivation is pure self-interest in free market economy which means decisions are based on private gain. Consumers want to maximise utility, producers want to maximise factor incomes while in planned economy there is a lack of choice for consumers in terms of what goods are produced. Producers do not aim for profit instead there main motive is to produce common goods which causes workers to be selfless and there is lack of incentives for workers.

     Factors of production in market economy is privately own by the firms so they have a right to earn income for it for example property rent. In planned economy factors of production are state owned (e.g. Housing, factories) so personal income cannot be derived from them.

There is a freedom of choice in market economy. Consumers and producers can buy and sell what they want. Workers can choose where they want to work. Enterprise can enter and exit any industry they want whereas in command economy it is the opposite.

  Consumers sovereignty occurs in market economy where consumers determine what to produce. If they are willing to pay higher price for a commodity it will be produced more. In planned economy consumers have no such option. Government determines the decision what they want will be produced.

   Competition exists in free market but not in planned economy. Between firms there is an incentive to produce better quality goods in free economy whereas in planned as there is no competition so only one type of production for e.g. Soap, powder, cars etc. This leads to poor quality goods.

   In free market economy prices act as a rationing device. They ration scarce goods to those who can afford to pay. Resources are allocated to those who have higher spending power. This may cause unequal income distribution. Whereas in planned economy price fixing is by government. Production doesn't respond to surplus and shortages as under the price system. Government imposes maximum prices for e.g. Rent control in case of shortages to protecy consumers and minimum prices for e.g. Agriculture to protect producers.

        Each of the market systems have their own advantages and disadvantages therefore nowadays we have mixed economies which is a mixture of planned and free market economy. It covers the drawbacks of both the systems.