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Planned economics
1. Planned economies are sometimes called "command economies" because the state commands the use of resources (such as labour and factories) that are used to produce goods and services as it owns factories, land and natural resources. Planned economies are economies with a large amount of central planning and direction, when the government takes all the decisions, the government decides production and consumption. Planning of this kind is obviously very difficult, very complicated to do, and the result is that there is no society, which is completely a command economy. The actual system employed varies from state to state, but command or planned economies have a number of common features.
2. Firstly, the state decides precisely what the nation isto produce. It usually plans five years ahead. It is the intention of the planners that there should be enough goods and services for all.
3. 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 the 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.
4. 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 cannot start their own businesses and so new ideas rarely come forward.
- As a result, industries in planned economies can be very inefficient.
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What kind of economics are planned economies?
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Mixed economics
1. Command and market economies both have significant faults. Partly because of this, an intermediate system has developed, known as mixed economies.
2. A mixed economy means very much what it says as it contains elements of both market and planned economies. At one extreme we have a command economy, which does not allow individuals to make economic decisions, at the other extreme we have a free market, where individuals exercise considerable economic freedom of choicewithout any government restrictions. Between these two extremes lies a mixed economy. In mixed economies some resources are controlled by the government whilst others are used in response to the demands of consumers.
3.Technically, all the economies of the world are mixed: it is just the balance elements between market and planned elements that alters. Some countries are nearer to command economies, while others arc closer to free market economies. So, for example, Hong Kong has some state-controlled industry, while Cuba has some privately owned and controlled firms.
4. The aim of mixed economies is to avoid the disadvantages of both systems while enjoying the benefits that they both offer. So, in a mixed economy the government and the private sector interact in solving economic problems. The state controls the share of the output through taxation and transfer payments and intervenes to supply essential items such as health, education and defence, while private firms produce cars, furniture, electrical items and similar, less essential products.
5. The UK is a mixed economy: some services are provided by the state (for example, health care and defence) whilst a range of privately owned businesses offer other goods and services. The Conservative government under Margaret Thatcher switched many businesses from being state-owned and controlled to being privately owned as part of its privatization programme. This has taken the UK economy further away from the planned system.
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What is the aim of mixed economics?
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