Mixed Eonomy And Planned Economy

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Market economy

A market economy is a system where the laws of supply and demand direct the production of goods and Services. Supply includes Resources-boost-the-u-s-economy-3306228″>Natural Resources, capital, and labor. Demand includes purchases by consumers, businesses, and the government. 

Businesses sell their wares at the highest price consumers will pay. At the same time, shoppers look for the lowest prices for the goods and services they want. Workers bid their services at the highest possible wages that their skills allow. Employers seek to get the best employees at the lowest possible price.

Capitalism requires a market economy to set prices and distribute goods and services. Socialism-types-pros-cons-examples-3305592″>Socialism and Communism need a planned economy to create a central plan that guides economic decisions. Market economies evolve from traditional economies. Most societies in the modern world have Elements of all three types of economies. That makes them mixed economies.


Six Characteristics of a Market Economy

The following six characteristics define a market economy.

  1. Private Property. Most goods and services are privately-owned. The owners can make legally-binding contracts to buy, sell, or lease their property. In other words, their assets give them the right to profit from ownership. But U.S. law excludes some assets. Since 1865, you cannot legally buy and sell human beings. That includes you, your body, and your body parts. 
  2. Freedom of Choice. Owners are free to produce, sell, and purchase goods and services in a competitive market. They only have two constraints. First is the price at which they are willing to buy or sell. Second is the amount of capital they have.

3. Motive of Self-Interest. Everyone sells their wares to the highest bidder while negotiating the lowest price for their purchases. Although the reason is selfish, it benefits the economy over the long run. This auction system sets prices for goods and services that reflect their market value. It gives an accurate picture of supply and demand at any given moment.

4. Competition. The force of competitive pressure keeps prices low. It also ensures that Society provides goods and services most efficiently. As soon as demand increases for a particular item, prices rise thanks to the law of demand. Competitors see they can enhance their profit by producing it, adding to supply. That lowers prices to a level where only the best competitors remain. This competitive pressure also applies to workers and consumers. Employees vie with each other for the highest-paying jobs. Buyers compete for the best product at the lowest price. There are three strategies that work to maintain a competitive advantage.

5. System of Markets and Prices. A market economy relies on an efficient market in which to sell goods and services. That’s where all buyers and sellers have equal access to the same information. Price changes are pure reflections of the laws of supply and demand. There are five determinants of demand.

6. Limited Government. The role of government is to ensure that the markets are open and working. For example, it is in charge of Growth-3306320″>national defense to protect the markets. It also makes sure that everyone has equal access to the markets. The government penalizes monopolies that restrict competition. It makes sure no one is manipulating the markets and that everyone has equal access to information. 


Four Advantages of a Market Economy

Since a market economy allows the free interplay of supply and demand, it ensures that the most desired goods and services are produced. Consumers are willing to pay the highest price for the things they want the most. Businesses will only create those things that return a profit.

Second, goods and services are produced in the most efficient way possible. The most productive companies will earn more than less productive ones.

Third, it rewards innovation. Creative new products will meet the needs of consumers in better ways that existing goods and services. These cutting-edge technologies will spread to other competitors so they, too, can be more profitable. This illustrates why Silicon Valley is America’s innovative advantage.

Fourth, the most successful businesses invest in other top-notch companies. That gives them a leg up and leads to increased quality of production. 


The Disadvantages of a Market Economy

The key mechanism of a market economy is competition. As a result, it has no system to care for those who are at an inherent competitive disadvantage. That includes the elderly, children, and people with mental or physical disabilities.

Second, the caretakers of those people are also at a disadvantage. Their energies and skills go toward caretaking, not competing. Many of these people might become contributors to the economy’s overall comparative advantage if they weren’t caretakers.

That leads to the third disadvantage. The human resources of the society may not be optimized. For example, a child who might otherwise discover the cure for cancer might instead work at McDonald’s to support her low-income family.

Fourth, the society reflects the values of the winners in the market economy. A market economy may produce private jets for some while others starve and are homeless. A society based on a pure market economy must decide whether it’s in its larger self-interest to care for the vulnerable.

If it decides it is, the society will grant the government a significant role in redistributing resources. As such, there are so many mixed economies. Most so-called market economies are mixed economies. 

The Preamble of the Constitution includes a goal to “promote the general welfare.” The government could take a larger role than what a market economy prescribes. This led to many social safety programs, such as Social Security, food stamps, and Medicare. 

Planned Economy

Five Traits of a Planned Economy

A Planned economy is where a central government makes all economic decisions. Either the government or a collective owns the land and the means of production. It doesn’t rely on the laws of supply and demand that operate in a market economy. A Planned economy also ignores the customs that guide a traditional economy. In recent years, many centrally-planned economies began adding aspects of the market economy. The resultant Mixed Economy better achieves their goals.

Five Characteristics of a Planned Economy

You can identify a modern centrally planned economy by the following five characteristics.

  1. The government creates a central economic plan. The five-year plan sets economic and societal goals for every sector and region of the country. Shorter-term plans convert the goals into actionable objectives. 
  2. The government allocates all resources according to the central plan. It tries to use the nation’s capital, labor and natural resources in the most efficient way possible. It promises to use each person’s skills and abilities to their highest capacity. It seeks to eliminate Unemployment.
  3. The central plan sets the priorities for the production of all goods and services. These include quotas and price controls. Its goal is to supply enough food, housing, and other basics to meet the needs of everyone in the country. It also sets national priorities. These include mobilizing for war or generating robust economic growth.

4. The government owns monopoly businesses. These are in industries deemed essential to the goals of the economy. That usually includes finance, utilities, and automotive. There is no domestic competition in these sectors.

5. The government creates laws, regulations, and directives to enforce the central plan. Businesses follow the plan’s production and hiring targets. They can’t respond on their own to free market forces. 

A Planned economy has a few advantages, although they come with a few important disadvantages as well.


Advantages

  • Can manipulate large amounts of resources for large projects without lawsuits or environmental regulatory issues.
  • An entire society can be transformed to conform to the government’s vision, from nationalizing companies to placing workers in new jobs after a governmental skill assessment.


Disadvantages

  • Rapid change can completely ignore society’s needs, forcing the development of a black market and other coping strategies.
  • Goods production is not always matched to demand, and poor planning often leads to rationing.
  • Innovation is discouraged and leaders are rewarded for following orders rather than taking risks.

Advantages

Planned economies can quickly mobilize economic resources on a large scale. They can execute massive projects, create industrial power, and meet social goals. They aren’t slowed down by lawsuits from individuals or environmental impact statements. 

Planned economies can wholly transform societies to conform to the government’s vision. The new administration nationalizes private companies. Its previous owners attend “re-Education” classes. Workers receive new jobs based on the government’s assessment of their skills. 

Disadvantages

This rapid mobilization often means planned economies mow down other societal needs. For example, the government tells workers what jobs they must fulfill. It discourages them from moving. The goods it produces aren’t always based on consumer demand. But citizens find a way to fulfill their needs. They often develop a shadow economy or black market. It buys and sells the things the planned economy isn’t producing. Leaders’ attempts to control this market weaken support for them.

They often produce too much of one thing and not enough of another. It’s difficult for the central planners to get up-to-date information about consumers’ needs. Also, prices are set by the central plan. They no longer measure or control demand. Instead, rationing often becomes necessary.

Planned economies discourage innovation. They reward business leaders for following directives. This doesn’t allow for taking the risks required to create new solutions. Planned economies struggle to produce the right exports at global market prices. It’s challenging for central planners to meet the needs of the domestic market. Meeting the needs of international markets is even more complex.

Examples

Here are examples of the most well-known countries with planned economies:

  • Belarus: This former Soviet satellite is still a planned economy. The government owns 80 percent of the country’s businesses and 75 percent of its banks. 
  • China: After World War II, Mao Tse Tung created a society ruled by Communism. He enforced a strictly planned economy. The current leaders are moving toward a market-based system. They continue to create five-year plans to outline economic goals and objectives.
  • Cuba: Fidel Castro’s 1959 revolution installed Communism and a planned economy. The Soviet Union subsidized Cuba’s economy until 1990. The government is slowly incorporating market reforms to spur growth.
  • Iran: The government controls 60 percent of the economy through state-owned businesses. It uses price controls and subsidies to regulate the market. This created Recession-3306019″>recessions, which it has ignored. Instead, it devoted resources to expanding its nuclear capability. The United Nations imposed sanctions, worsening its recessions. The economy improved once the nuclear trade deal ended sanctions in 2015. 
  • Libya: In 1969, Muammar Gaddafi created a planned economy reliant upon oil revenues. Most Libyans work for the government. Gaddafi had been instituting reforms to create a market-based economy. But his 2011 assassination halted these plans.
  • North Korea: After World War II, President Kim Il-sung created the world’s most centrally-planned economy. It created food shortages, Malnutrition and several bouts of mass starvation. Most state resources go into building up the military. 
  • Russia: In 1917, Vladimir Lenin created the first Communist Planned economy. The Russian people were ready for a radical change, having suffered starvation during World War I. Joseph Stalin built up military might and quickly rebuilt the economy after World War II. The Soviet State Planning Committee, or “Gosplan,” has been the most-studied planned economy entity. The USSR was also the longest-running planned economy, lasting from the 1930s until the late 1980s. Then, the state transferred ownership of the largest companies to Oligarchy-pros-cons-examples-3305591″>oligarchs. 

In 2018, planned economies like China, Russia and Iran have shifted towards more economic freedom, while North Korea and Cuba still remain economically repressed.

 

 

Development of the Theory 

Viennese economist Otto Neurath developed the concept of a Planned economy after World War I. Neurath proposed it as a way to control hyperinflation. The phrase “Planned economy” comes from the German word “Befehlswirtschaft.” It described the Fascism-definition-examples-pros-cons-4145419″>fascist Nazi economy.

But centrally planned economies existed long before Nazi Germany. They included the Incan empire in 16th century Peru and the Mormons in 19th century Utah. The United States used a planned economy to mobilize for World War II. 

 

 


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A mixed economy is an economic system that combines elements of both capitalism and socialism. In a mixed economy, some of the means of production are privately owned and operated, while others are owned and operated by the state. The government plays a role in regulating the economy and providing social welfare programs.

There are several advantages to a mixed economy. First, it allows for the efficient allocation of resources. Private businesses are able to compete with each other, which drives down prices and increases innovation. Second, a mixed economy provides a safety net for its citizens. The government can provide social welfare programs such as unemployment insurance and healthcare, which can help to protect people from POVERTY and economic hardship. Third, a mixed economy can be more stable than a pure capitalist or Socialist Economy. The government can use its power to regulate the economy and prevent boom-and-bust cycles.

However, there are also some disadvantages to a mixed economy. First, it can be difficult to balance the interests of private businesses and the public good. The government may be tempted to intervene in the economy in ways that benefit special interests or that harm economic growth. Second, a mixed economy can be inefficient. The government may not be as efficient at allocating resources as private businesses. Third, a mixed economy can be less innovative than a pure Capitalist Economy. The government may be more risk-averse than private businesses, and it may be less willing to invest in new technologies.

Despite these disadvantages, mixed economies are the most common type of economic system in the world. They offer a balance of economic freedom and social welfare that appeals to many people.

A planned economy is an economic system in which the government controls all aspects of production and distribution. The government owns all of the means of production, and it sets prices, wages, and production quotas. Planned economies are often associated with communism, but they have also been implemented by socialist governments.

There are several advantages to a planned economy. First, it can be very efficient. The government can coordinate production and distribution to ensure that resources are used in the most efficient way possible. Second, a planned economy can be very equitable. The government can use its power to ensure that everyone has access to basic necessities such as food, housing, and healthcare. Third, a planned economy can be very stable. The government can use its power to prevent boom-and-bust cycles.

However, there are also some disadvantages to a planned economy. First, it can be very inflexible. The government may be slow to respond to changes in the market, which can lead to shortages or surpluses. Second, a planned economy can be very inefficient. The government may not be as efficient at allocating resources as private businesses. Third, a planned economy can be very corrupt. The government may use its power to enrich itself at the expense of the people.

Despite these disadvantages, planned economies have been successful in some countries. For example, the Soviet Union was able to industrialize rapidly under a planned economy. However, planned economies have also failed in many countries. For example, the economies of Eastern Europe collapsed after the fall of communism.

In conclusion, both mixed economies and planned economies have advantages and disadvantages. The best type of economic system for a particular country depends on a variety of factors, such as the country’s history, culture, and resources.

What is a market economy?

A market economy is an economic system in which the prices for goods and services are determined by the supply and demand of the market. In a market economy, businesses are free to compete with each other, and consumers are free to choose which businesses they want to buy from.

What are the advantages of a market economy?

There are several advantages to a market economy. First, market economies are efficient. When businesses are free to compete with each other, they are constantly trying to find ways to produce goods and services more cheaply and efficiently. This leads to lower prices for consumers and a wider variety of goods and services to choose from.

Second, market economies are dynamic. Businesses are constantly innovating and developing new products and services, which leads to economic growth.

Third, market economies are flexible. They are able to adapt to changes in the economy, such as changes in consumer demand or changes in technology.

What are the disadvantages of a market economy?

There are also some disadvantages to a market economy. First, market economies can lead to inequality. When businesses are free to compete with each other, some businesses will be more successful than others. This can lead to a concentration of wealth in the hands of a few people.

Second, market economies can lead to environmental problems. When businesses are free to produce goods and services without any government regulation, they may pollute the Environment.

Third, market economies can lead to unemployment. When businesses are not doing well, they may lay off workers. This can lead to high unemployment rates.

What is a planned economy?

A planned economy is an economic system in which the government controls the production and distribution of goods and services. In a planned economy, the government sets prices, wages, and production quotas.

What are the advantages of a planned economy?

There are some advantages to a planned economy. First, planned economies can be used to achieve social goals, such as full EMPLOYMENT or income Equality.

Second, planned economies can be used to promote Economic Development. The government can invest in key industries and Infrastructure-2/”>INFRASTRUCTURE, which can lead to economic growth.

Third, planned economies can be used to protect the environment. The government can regulate businesses to prevent pollution.

What are the disadvantages of a planned economy?

There are also some disadvantages to a planned economy. First, planned economies can be inefficient. When the government controls the production and distribution of goods and services, it can be difficult to respond to changes in consumer demand or changes in technology.

Second, planned economies can be inflexible. They are not able to adapt to changes in the economy as quickly as market economies.

Third, planned economies can lead to Corruption. When the government controls the economy, there is a risk that government officials will use their power to enrich themselves.

What is a mixed economy?

A mixed economy is an economic system that combines elements of both a market economy and a planned economy. In a mixed economy, the government plays a role in the economy, but businesses are also free to compete with each other.

What are the advantages of a mixed economy?

There are several advantages to a mixed economy. First, mixed economies are able to achieve both economic efficiency and social goals. The government can use its power to regulate businesses and protect the environment, while businesses are free to compete with each other and innovate.

Second, mixed economies are flexible and adaptable. They are able to respond to changes in the economy as quickly as market economies, while also being able to achieve social goals.

Third, mixed economies are less likely to be corrupt than planned economies. When businesses are free to compete with each other, there is less opportunity for government officials to use their power to enrich themselves.

What are the disadvantages of a mixed economy?

There are also some disadvantages to a mixed economy. First, mixed economies can be complex and difficult to manage. The government needs to strike a balance between regulating businesses and allowing them to compete freely.

Second, mixed economies can be inefficient. When the government intervenes in the economy, it can create inefficiencies.

Third, mixed economies can be unstable. When the government changes its policies, it can lead to economic instability.

Question 1

Which of the following is not a characteristic of a mixed economy?

(A) Private ownership of capital
(B) Government regulation of the economy
(C) Central planning
(D) A free market

Answer

(C)

A mixed economy is an economic system that combines elements of both capitalism and socialism. In a mixed economy, some industries are privately owned and operated, while others are owned and operated by the government. The government also plays a role in regulating the economy, but it does not have complete control over it.

Question 2

Which of the following is not a characteristic of a planned economy?

(A) Central planning
(B) Private ownership of capital
(C) Government regulation of the economy
(D) A free market

Answer

(B)

A planned economy is an economic system in which the government controls all aspects of the economy, including production, distribution, and prices. In a planned economy, there is no private ownership of capital and the government has complete control over the economy.

Question 3

Which of the following is a benefit of a mixed economy?

(A) It allows for innovation and Entrepreneurship.
(B) It provides a safety net for the poor and the unemployed.
(C) It is efficient and produces a high standard of living.
(D) It is stable and resistant to economic shocks.

Answer

(A)

A mixed economy allows for innovation and entrepreneurship because it allows private businesses to operate freely. This competition can lead to new products and services, as well as lower prices.

Question 4

Which of the following is a benefit of a planned economy?

(A) It is efficient and produces a high standard of living.
(B) It is stable and resistant to economic shocks.
(C) It allows for innovation and entrepreneurship.
(D) It provides a safety net for the poor and the unemployed.

Answer

(B)

A planned economy is stable and resistant to economic shocks because the government can control the economy and prevent major disruptions.

Question 5

Which of the following is a criticism of a mixed economy?

(A) It can lead to inequality and poverty.
(B) It can be inefficient and produce a low standard of living.
(C) It is not stable and is susceptible to economic shocks.
(D) It does not allow for innovation and entrepreneurship.

Answer

(A)

A mixed economy can lead to inequality and poverty because the government does not have complete control over the economy. This can lead to businesses taking advantage of workers and paying them low wages.

Question 6

Which of the following is a criticism of a planned economy?

(A) It can lead to inequality and poverty.
(B) It can be inefficient and produce a low standard of living.
(C) It is not stable and is susceptible to economic shocks.
(D) It does not allow for innovation and entrepreneurship.

Answer

(A, B, C, D)

All of these are criticisms of a planned economy. A planned economy can lead to inequality and poverty because the government has complete control over the economy. This can lead to businesses taking advantage of workers and paying them low wages. A planned economy can also be inefficient and produce a low standard of living because the government does not have the same incentives as businesses to produce goods and services efficiently. A planned economy is also not stable and is susceptible to economic shocks because the government cannot control all aspects of the economy.

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