The disadvantages of centrally planned economies include the inefficient distribution of resources and the suppression of economic freedom. Centrally planned economies are generally associated with dictatorial political states.Know More
In a centrally planned economy, planners cannot accurately predict consumer preferences, surpluses and shortages, so they cannot efficiently allocate resources. This results in an abundance of goods that cannot be sold in some areas and a shortage of goods that are in high demand in others. In a free market economy, the allocation of scarce resources is dictated by the price system, so resources go where supply and demand dictate. One example of a centrally planned economy is the former Soviet Union, which operated as a centrally planned economy from the Bolshevik Revolution of 1917 until the 1991 fall of the Communist Party.
Central economic planning also stifles economic freedom, as citizens have no incentive to innovate or to take entrepreneurial risks. The desire to earn profit is a foundation of the free market system. Central planners suppress the profit motive by taking decisions from businessmen and transferring them to the government. Economist Adam Smith believed that society functioned best when the economy was guided by an "invisible hand" that rewarded personal economic freedom and risk taking. Central planning handcuffs the "invisible hand."Learn more about Economics
Although the world has seen multiple centrally planned economies, two of the few remaining examples as of 2015 are Cuba under Fidel and Raul Castro and North Korea under the Kim dynasty, according to the Heritage Foundation and Asian Trade Hub. The most notable historic examples of centrally planned economies include Russia under Joseph Stalin and China under Mao Zedong, according to About News.Full Answer >
Countries whose economies attract minimal involvement of the government have a market economy. According to a 2013 Index of Economic Freedom, the United States, Canada, Denmark, the United Kingdom, Hong Kong and Mauritius have a market economy. Most market economies have a degree of state-dictated planning and are thus categorized as mixed economies.Full Answer >
Cell phones have had a profound impact on a number of different industries, helping to develop new communities and business networks in economies on a global scale. Not only are these devices able to connect people to their customers in a new way, they also allow those from different socioeconomic backgrounds to engage in consumer behavior without traditional financial institutions to help them.Full Answer >
Monopolies and oligopolies have a direct impact on the prices of goods, which affects economies. They also indirectly have an impact on the job market as a result of their control over pricing.Full Answer >