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employed varies from state to state, but command or planned economies have a
number of common features.
Firstly, the state decides precisely what the nation is to produce. It usually
plans five years ahead. It is the intention of the planners that there should be
enough goods and services for all. Secondly, industries are asked to comply
with these plans and each industry and factory is set a production target to
meet. If each factory and farm meets its target, then the state will meet its
targets as set out in five-year plans. You could think of the factory and farm
targets to be objectives which, if met, allow the nation’s overall aim to be
reached.
A planned economy is simple to understand but not simple to operate. It
does, however, have a number of advantages:
- Everyone in society receives enough goods and services to enjoy a basic
standard of living.
- Nations do not waste resources duplicating production.
- The state can use its control of the economy to divert resources to
wherever it wants. As a result, it can ensure that everyone receives a good
education, proper health care or that transport is available.
Several disadvantages also exist. It is these disadvantages that have led to
many nations abandoning planned economies over recent years:
- There is no incentive for individuals to work hard in planned economies.
- Any profits that are made are paid to the government.
- Citizens can not start their own businesses and so new ideas rarely come
forward.
- As a result, industries in planned economies can be very inefficient.
A major problem faced by command or planned economies is that of
deciding what to produce. Command economies tend to be slow when
responding to changes in people’s tastes and fashions. Planners are likely to
underproduce some items as they cannot predict changes in demand. Equally,
some products, which consumers regard as obsolete and unattractive, may be
overproduced. Planners are afraid to produce goods and services unless they
are sure substantial amounts will be purchased. This leads to delays and queues
for some products.
employed varies from state to state, but command or planned economies have a number of common features. Firstly, the state decides precisely what the nation is to produce. It usually plans five years ahead. It is the intention of the planners that there should be enough goods and services for all. Secondly, industries are asked to comply with these plans and each industry and factory is set a production target to meet. If each factory and farm meets its target, then the state will meet its targets as set out in five-year plans. You could think of the factory and farm targets to be objectives which, if met, allow the nation’s overall aim to be reached. A planned economy is simple to understand but not simple to operate. It does, however, have a number of advantages: - Everyone in society receives enough goods and services to enjoy a basic standard of living. - Nations do not waste resources duplicating production. - The state can use its control of the economy to divert resources to wherever it wants. As a result, it can ensure that everyone receives a good education, proper health care or that transport is available. Several disadvantages also exist. It is these disadvantages that have led to many nations abandoning planned economies over recent years: - There is no incentive for individuals to work hard in planned economies. - Any profits that are made are paid to the government. - Citizens can not start their own businesses and so new ideas rarely come forward. - As a result, industries in planned economies can be very inefficient. A major problem faced by command or planned economies is that of deciding what to produce. Command economies tend to be slow when responding to changes in people’s tastes and fashions. Planners are likely to underproduce some items as they cannot predict changes in demand. Equally, some products, which consumers regard as obsolete and unattractive, may be overproduced. Planners are afraid to produce goods and services unless they are sure substantial amounts will be purchased. This leads to delays and queues for some products.
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