Distinguish between a centrally planned economy and a market economy - Economics - Introduction

Question

Distinguish between a centrally planned economy and a market
economy

Bhawna Madaan · Accepted Answer

Points of Difference

Centrally Planned Economy

Market Economy

1

Ownership of factors of production

Factors of production are publically owned; i e , public
ownership

Factors of production are privately owned

2

Production motive

The motive of production is social welfare

The main motive is profit making

3

Governing factor

The production is governed by planning mechanism; i e according
to the government plans

The production is governed by price mechanism; i e , by demand
and supply

4

Income distribution

The degree of inequality of income is low

There exists unequal distribution of income

5

Government’s role

The main role is played by the government−from production
to distribution

The main role is played by private players They decide what to
produce, while the role of a government is limited to maintaining
law and order in the nation

Points of Difference		Centrally Planned Economy	Market Economy
1	Ownership of factors of production	Factors of production are publically owned; i.e., public ownership.	Factors of production are privately owned.
2	Production motive	The motive of production is social welfare.	The main motive is profit making.
3	Governing factor	The production is governed by planning mechanism; i.e. according to the government plans.	The production is governed by price mechanism; i.e., by demand and supply.
4	Income distribution	The degree of inequality of income is low.	There exists unequal distribution of income.
5	Government’s role	The main role is played by the government−from production to distribution.	The main role is played by private players. They decide what to produce, while the role of a government is limited to maintaining law and order in the nation.

Distinguish between a centrally planned economy and a market economy.