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2.3 CENTRALLY PLANNED ECONOMIES

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ECONOMICSMR. HOOD24 FEBRUARY 2014

2.3 CENTRALLY PLANNED ECONOMIES

ECONOMICSMR. HOOD`S NOTES17 FEBRUARY 2014

SECTION FOCUSIN A CENTRALLY PLANNED, OR COMMAND, ECONOMY, THE CENTRAL GOVERNMENT CONTROLS THE ECONOMY. CENTRAL PLANNING HAS LIMITATIONS AND DISADVANTAGES NOT FOUND IN MARKET ECONOMIES.

INTRODUCTION

CENTRALLY PLANNED ECONOMIES

WORK IN DIRECT CONTRAST TO MARKET

ECONOMIES

CENTRALLY PLANNED

ECONOMIES OPPOSE PRIVATE PROPERTY

OPPOSE THE FREE MARKET PRICING

OPPOSE COMPETITION + CONSUMER

CHOICE

OBJECTIVE 1DESCRIBE HOW A

CENTRALLY PLANNED ECONOMY

IS ORGANIZED

CENTRAL GOVERNMENT ANSWER 3 ECONOMIC

QUESTIONS

GOVERNMENT CONTROL OF FACTOR RESOURCES +

PRODUCTION

CENTRAL GOVERNMENT

OWNS LAND AND CAPITAL

IN A SENSE OWNS LABOR, TOO

CONTROL WORK + WAGES

DECISIONS ON WHAT TO PRODUCE NOT MADE BY

CONSUMERS

CONSUMERS DO NOT HAVE CONSUMER

SOVEREIGNTY

SOCIALISM + COMMUNISM

TERMS OFTEN USED INTERCHANGEABLY BUT

DISTINCTIONS MUST BE MADE

1 - SOCIALISM

SOCIAL + POLITICAL PHILOSOPHY BASED ON THE BELIEF THAT DEMOCRATIC

MEANS…

… SHOULD BE USED TO DISTRIBUTE WEALTH EVENLY THROUGHOUT A

SOCIETY

REAL EQUALITY ONLY EXISTS WHEN POLITICAL EQUALITY COUPLED WITH

ECONOMIC EQUALITY

PUBLIC CONTROLS THE

CENTERS OF ECONOMIC POWER

ALTHOUGH SOCIALIST NATIONS ARE

DEMOCRACIES

THEY DO REQUIRE A HIGH

DEGREE OF CENTRAL PLANNING

SOCIALISM EXISTS TO VARYING DEGREES IN

THE WORLD

FOR EXAMPLE: CUBA

2 - COMMUNISM

A POLITICAL SYSTEM CHARACTERIZED BY A CENTRALLY PLANNED ECONOMY WITH

ALL…

…ECONOMIC AND POLITICAL POWER RESTING IN THE HANDS OF THE CENTRAL

GOVERNMENT

A POLITICAL SYSTEM THAT AROSE OUT OF THE PHILOSOPHY OF

SOCIALISM

ALL ECONOMIC + POLITICAL POWER RESTS

IN THE HANDS OF CENTRAL GOVERNMENT

COMMUNIST

GOVERNMENTS ARE AUTHORITARIAN

STRICT OBEDIENCE FROM CITIZENS,

NO FREEDOM OF JUDGEMENT OR ACTION

DOMINATED BY A SINGLE PARTY OR

DICTATOR

FOR E XAMPLE: FORMER SOVIET UNION

CONFUSED? HOW DO

SOCIALISM AND COMMUNISM DIFFER?

IN SOCIALIST COUNTRIES THE

GOVERNMENT OFTEN OWNS MAJOR INDUSTRIES

SOCIALISM HAS BEEN ACHIEVED PEACEFULLY THROUGH

DEMOCRACY

IN COMMUNIST NATIONS ALL ECONOMIC + POLITICAL POWER RESTS IN HANDS OF CENTRAL

GOVERNMENT

COMMUNIST

GOVERNMENTS ARE AUTHORITARIAN

AUTHORITARIAN GOVERNMENTS DEMAND STRICT OBEDIENCE FROM

CITIZENS…

…THEY DO NOT ALLOW INDIVIDUALS FREEDOM OF

JUDGEMENT AND ACTION

OBJECTIVE 2IDENTIFY THE

PROBLEMS OF A CENTRALLY PLANNED

ECONOMY

IN THEORY, CENTRALLY PLANNED ECONOMIES CAN WORK

EFFECTIVELY…

…TOWARD EXPLICITLY STATED GOALS

BUT CANNOT MEET

CONSUMERS´ NEEDS OR WANTS

LACK OF INCENTIVE TO WORK HARD

DOES NOT REWARD INNOVATION, DISCOURAGES AND

KIND OF CHANGE

…TOWARD EXPLICITLY STATED GOALS

SACRIFICE PERSONAL

FREEDOMS FOR SOCIAL GOALS

MANY COUNTRIES HAVE EXPERIMENTED WITH CENTRALLY

PLANNED ECONOMIES…

…AND MOST HAVE FAILED