Question

Explain the difference between a planned economy and a market economy

Answer 1

In planned economy, decisions made on production, investments, pricing and distribution, etc. are often made by a governing authority whereas in a market economy, the decisions on investments, production and distribution are taken in accordance to the forces in the market.

Answer 2

CENTRALLY PLANNED ECONOMY

• These are the economies where the economic activities are firmly controlled by the government or some central authority.
• Economic decisions are driven by the motive of social welfare.
• The consumer is not sovereign.
• Most resources are controlled by the government.The government decides at what price the goods are to be sold in the market.
• Public sector dominates the economic activity.

MIXED ECONOMY

• These are the economic where the economic activities are controlled by the market forces.
• Economic decisions are driven by the motive of profit maximisation.
• The consumer is sovereign.
• Most resources are controlled by the people. The market determines the prices of goods and services.
• Private sector dominates the economic activity.