Question

Distinguish between a centrally planned economy and a market economy.

Answer 1

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.