Centrally Planned Economies Sec. 2.3. What is a Centrally Planned Economy? In a centrally planned...
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Transcript of Centrally Planned Economies Sec. 2.3. What is a Centrally Planned Economy? In a centrally planned...
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Centrally Planned EconomiesSec. 2.3
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What is a Centrally Planned Economy?
• In a centrally planned economy:– The government owns both land and capital. – The government decides the three economic
questions:• What to produce• How much to produce• But, How much to charge (This one is different)
• Centrally Planned Economies are classified as Socialist and Communist
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Communism
• Communism is a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the government.
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Soviet Industry
• Soviet planners favored heavy-industry production (such as steel and machinery), over the production of consumer goods.
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Soviet Consumers
• Consumer goods in the Soviet Union were scarce and usually of poor quality.
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Problems of a Centrally Planned Economy
• Centrally planned economies face problems of poor-quality goods, shortages, and diminishing production.
• A lack of competition due do equality causes this
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Modern Economies Sec. 2.4
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The Problem with Market Economies
• Laissez faire is the doctrine that government generally should not interfere in the marketplace.– The economy runs itself
• Market economies, with all their advantages, have certain drawbacks.– They will need help –
government intervention
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Government Intervention
• Roads and highways• Health Care• Education• National Defense• Employment• Mass Transit
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The Mixed Economy
• In a mixed economy:– The government
purchases land, labor, and capital from households in the factor market
– And purchases goods and services in the product market.
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Comparing Mixed Economies• Economic systems are classified by the amount of
government involvement.– Centrally Planned has lots of government intervention– Free Market (Free Enterprise) has very little if any government
• The degree of government involvement in the economy varies among nations.
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Continuum of Mixed Economies
• Cuba• United States• Canada
• China• Hong Kong• France