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Differences between Market and Planned Economy

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Market Economy Planned Economy * Does not need officials or civil servants to decide what should be produced. The gov't has no part to play in running the economy. So, there is less bureaucracy and red tape. * Many planners and administration are needed to run the system. It leads slow decisions, red tape, nepotism and corruption. * Does not recognize any sense of duty to the community. Only those goods and services offering a profit are produced. Some essential services like education, library services and museums may not be produced adequately to be made available by private firms because the production of these services is not profitable. * In planned, goods and services which would not be produced by market economy system may be provided by a planned economy. ...read more.


As a consequence, Necessities for the poor may be neglected such as bread and potatoes. * Scarce resources can be allocated to the production of necessities like basic foodstuff and not luxuries. * In market, the system is through price mechanism. Makes sure that shortages and surpluses of goods and services do not last for long. * Planners may not know consumer wants and may make wrong decision leading to shortages of some goods and services and surpluses of others * In market, the system may break down because of the development of monopoly situation. A monopolist (a single producer) will be able to determine prices and output because there is no competition. ...read more.


* In market system, there may be unequal distribution of income and wealth. Some people could become very rich and powerful because of their success in business. * In planned, the distribution of wealth is more equal because goods and services can be priced so that everyone can afford them and because no individual can become very rich by making a profit. * In market economy, with no gov't control in the economy, producers would seek to maximize profit and may pay little attention to pollution, healthy and safe conditions of the workers and quality of goods and services. For e.g. a builder may build houses cheaply to maximize his profit without regard the safety of the people who live in them. * The gov't in planned economy can make sure that factories do not cause pollution and that people work in healthy and safe condition ...read more.

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