Distinguish between a centrally planned economy and a market economy.
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.
\( * \) 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.