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In a Planned Economy, the government decides what is produced, by whom and for whom

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Introduction

a r e p o r t o n PLANNED ECONOMY Done By: Fares Nimri, Moh'd Quadi and Inam Mufleh In a Planned Economy, the government decides what is produced, by whom and for whom. The government can also decide in what quantities are these items to be produced. This leads the government to controlling the use of resources in addition to the control of what labor produces and where to produce it, after producing these goods the government plans what to do with these goods. Market forces, which are supply and demand, do not decide who receives goods and services, Most Communist countries (e.g. China, Cuba, USSR before 1989 and other communist countries) are all examples of centrally planned economies. Planned Economies can also be called 'command economies. In a Centrally Planned Economy or a Command Economy Consumers usually have little choice; this is because there is sometimes no private property which means that the government can only produce these goods. This also means that the government can control the profits on these goods. ...read more.

Middle

- Bureaucracy or "red tape" is common in this type of economic system - There is no incentive to be enterprising - There is less incentive to work as the government fixes wages and private property is not allowed. This can lower the productivity of workers, since all wages are fixed (e.g.: a worker produces 10 items a day and another produces 2 items a day, both will get the same amount of money) The Bolshevik Revolution established a socialist state based on Marxist doctrine, which prescribes government ownership of all means of production which is called a planned economy, with each individual producing according to ability and remunerated according to the amount and quality of work. The country's land and banks were immediately nationalized, as was much industry. During the period known as war communism (1917-21), civil war raged in the country, and the central government functioned by combining fundamental Marxism with ad hoc emergency measures. By 1922 the country had been politically consolidated, and a new economic policy (NEP) was launched. ...read more.

Conclusion

There are no real transactions in public ownership because everything is owned by the State. How could the ownership change hands? Since there is no real transaction, no price can be generated. Price is used only for accounting, not for comparing economic efficiency. High price or low price makes no difference in resource allocation. A planned economy is a rigid economy that is unable to adjust itself, especially in the industrial sector. In the agricultural sector, reform started with the household responsibility system, but the ownership of land is still pending. The success of China's reform is basically because of the establishment of a market with private ownership alongside the old planned economy. In other words, the planned economy has not changed much, but it is becoming smaller and smaller compared to the growing market economy. China introduced the dual price system and allowed the private sector to grow. China deregulated the factor market (labor, capital, land and other natural resources) gradually, allowing them to flow and reorganize. Problems troubling the Chinese economy 1- Broadening income gap; 2- Corruption; 3- Huge economic losses caused by the State-owned enterprises (SOEs); 4- Unemployment because of reform in SOEs; 5- Weak social security system. 1- http://members.aol.com/kwiersma/ussr_econ.html 2- http://www.lead.org/lead/training/international/china/1998/papers/reforms.htm ...read more.

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