Centrally planned economy and a market economy

Distinguish between a centrally planned economy and a market economy.

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Expert Solution

Centrally planned economy

\( * \) In a centrally planned economy, all the major economic decisions are taken by the government.

\( * \) The government owns the means of production and distribution.

\( * \) Prices are set by the government

\( * \) An example of a centrally planned economy would be North Korea.

Market economy

\( * \) In a market economy, the various economic decisions are left to the free market or the laws of supply and demand.

\( * \) Private ownership of the means of production and distribution

\( * \) Prices are determined by the relative demand and supply of the products.

\( * \) An example of a market economy would be South Korea.

In a centrally planned economy, major economic decisions are made by a central authority. Centrally planned economies stand in contrast to market economies where large numbers of individual consumers and profit-seeking private firms operate most or all of the economy.

Ajay Kumar Gupta answered 2 years ago

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