The Command Economy Centrally Planned Economies 1 2

The Command Economy

Centrally Planned Economies ► ► 1. 2. 3. 4. Planned economies operate in direct contrast to free market systems. They oppose: Private property Free market pricing Competition Consumer choice

Organization n n In a planned economy, the government owns land, capital and labor. Individuals are told where to work… Firms are told how much to pay them. Factories are told what, and how much to produce. Farmers are told what to grow and where to send what they produce.

Which of the following is a difference between command economies and market economies? A. ) Command economies support private property and the market does not. B. ) Command economies believe in competition and the market does not. C. ) Market economies believe in government regulation and command economies do not. D. ) Market economies support private property and command economies do not.

► ► ► ► ► Is a political/economic theory, based on Socialism and developed by… Karl Marx… Socialist governments are elected… And the government FORCES people to share the wealth… According to Marx, after five or six generations of Socialism… People will become accustomed to sharing… And government will no longer be necessary… Life on Earth will become one loving brotherhood of mankind… “To each according to his needs; from each according to his abilities. Communism

Karl Marx and Adam Smith would have been best of friends and agreed upon everything. A. ) True B. ) False

The Soviet Union ► In 1917, the Tsar (emperor) of Russian was overthrown and executed… ► The nation was eventually taken over by communists led by Vladimir Lenin… ► Who established the Soviet Union… ► Which ran the largest socialist command economy in the world… ► And survived until 1991.

Map of the Soviet Union

Soviet Agriculture ► ► ► The Soviet government consolidated small farms into enormous state-run farms… Collectives—large farms leased to groups of peasant farmers… Who grew what they were told and received a guaranteed income from the state. Since there was no incentive to produce more or better crops… The Soviets had constant problems with providing their people with food.

Soviet Industry ► Soviet factories were also state-owned… ► Jobs were guaranteed and wages were set by the government… ► Workers had no incentive to work any harder than the minimum required… ► A popular joke went, “We pretend to work and they pretend to pay us”.

Housing in the Soviet Union

Soviet Consumers ► ► ► Consumer goods were often very poorly made… Because manufacturers had incentive to focus on quantity, not quality. Since there was no COMPETITION, customers had no OPTIONS… People had to wait in endless lines to purchase anything… And luxuries were always unavailable… Everything was EQUAL—but equally BAD.

Problems with Centrally Planned Economies ► Workers lack any incentive to work hard… ► Consumer goods were always of very poor quality… ► Shortages of EVERYTHING were CONSTANT… ► Individual freedoms are sacrificed.

Which of the following was not a result of Soviet central planning? A. ) Shortages B. ) Low Quality Products C. ) A surplus of goods and services D. ) A lack of choice of consumer products