Key Differences Between Planned and Free Market Economy Essay

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This essay will outline the key differences between planned and free market economies and it will also explain to what extent the advantages of these type of economies resulted in the majority of countries in the world adopting a mixed economy approach. At the one extreme, in a planned economy all economic decisions are made by central authorities. This type of economy can be found in countries like China, North Korea and Cuba. It plans amounts of resources to allocate for present consumption and amounts of investments for future output in each industry, the methods of production it will use and the distribution between consumers. At the other extreme is the free market economy. This type of economy can be found in the United Arabic Emirates. All economic decisions are taken by individuals, households and firms through the interaction of demand and supply without government intervention. Price changes act as mechanism whereby supply and demand are balanced. Is there a shortage the price will rise until the shortage is eliminated. If there is a surplus the price will fall until that is eliminated. The advantages of a planned economy are that stability can ensure the continuous utilisation of all resources so in an ideal scenario where idle production or unemployment is at minimum levels, the economy should be stable and not effected by inflation or recession. Quick and effective resource mobilisation for large scale projects is possible overriding self interest in the interest of the welfare of the general population to achieve goals to benefit society at large. Every individual has an equal right to receiving resources and all products are produced even if they are not economically. The disadvantages of a planned economy are that there is no local control by individuals and that inefficient resource distribution causes issues with surplus and shortages

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