Cambridge AS A Level Business Studies/ ZIMSEC Advanced Level Business Studies/ Business Enterprise Skills Notes: Planned/Command Economy: Features 

  • A planned economy is also known as a command economy
  • To recap society faces an economic problem of how to allocate its scarce resources
  • It has to answer three basic questions:
    • What to produce
    • How to produce and
    • For whom to produce?
  • The task of coming up with solutions to these basic questions often falls upon the government of that particular society
  • These questions are answered using economic systems
  • An economic system is also known as an economic order
  • An economic system can, therefore, be defined as an organized way in which a state or nation allocates its resources and apportions goods and services in the national community
  • Overtime three economic systems have evolved to become the most prominent
  • Here we will now examine the planned economic system

Characteristics/Features

  • It a favoured economic system in countries where governments with socialist/communist ideology are in power
  • The government owns and manages all the resources i.e Land, Capital and Entrepreneurship are in the hands of the government
  • The government determines what to produce, how much to produce and for whom to produce
  • This is usually done by presenting five-year plans to the public for example in China and the old USSR
  • The government maintains a tight grip on the economy and nothing happens without its go ahead
  • The main motive is to provide essential goods and services rather than profit
  • The government sets the prices which are usually affordable and in line with people’s income
  • There is usually not more than one brand of a given product
  • Consumers thus have a limited choice from which to pick a product
  • Examples of countries that have economic systems that lean towards the planned economic system include Cuba, China and North Korea
  • The advantages and disadvantages of the Planned¬†Economy can be found here

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