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Distinguish between a centrally planned economy and a market economy.

Answer» <html><body><p></p>Solution :A centrally planned economy is an economic system in which the state or government makes economic decisions. Under a centrally planned economy, <a href="https://interviewquestions.tuteehub.com/tag/governments-1010387" style="font-weight:bold;" target="_blank" title="Click to know more about GOVERNMENTS">GOVERNMENTS</a> own all of the factors of production such as land, capital, and resources, and government officials <a href="https://interviewquestions.tuteehub.com/tag/determine-437910" style="font-weight:bold;" target="_blank" title="Click to know more about DETERMINE">DETERMINE</a> when, where and how much is produced at any one time. This is also <a href="https://interviewquestions.tuteehub.com/tag/sometimes-648384" style="font-weight:bold;" target="_blank" title="Click to know more about SOMETIMES">SOMETIMES</a> referred to as a "command economy."In a planned economy, the decision-making is centralized so the government controls all of the supply and sets all of the demand. Prices are set by government officials.Socialism and communism need a command economy to create a central plan that guides economic decisions.The examples of centrally planned economy are – China, North Korea, etcA market economy is a system where the laws of supply and demand direct the production of goods and services. Prices are fixed in a market economy on basis of the equilibrium of supply and demand.Consumer preferences and resource scarcity determine which goods are produced and in what quantity; the prices in a market economy act as <a href="https://interviewquestions.tuteehub.com/tag/signals-13891" style="font-weight:bold;" target="_blank" title="Click to know more about SIGNALS">SIGNALS</a> to producers and consumers who use these price signals to help make decisions. Governments play a minor role in the direction of economic activity.A free market economy is an economy which the government plays a small role in.The two <a href="https://interviewquestions.tuteehub.com/tag/fundamental-466867" style="font-weight:bold;" target="_blank" title="Click to know more about FUNDAMENTAL">FUNDAMENTAL</a> features of market economics are:1. Private ownership of the means of production2. Voluntary exchanges / contractsThe perfect example for market economy is United States of America.</body></html>


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