I. How Is a Centrally Planned Economy Organized?

Chapter 2 Section 3

I. How is a Centrally Planned Economy Organized?  Central Government answers the 3 economic questions  A central bureaucracy makes all the economic decisions  After collecting data bureaucrats tell firms what and how to produce A. Government Control of Factor Resources and Production  Government controls land and capital  Government controls where individuals work and the wages they are paid (In a sense they also control labor)  Consumers do not have Consumer Sovereignty

B. Socialism and Communism 1. Socialism A social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society.  Socialist argue that real equality can only be achieved when political equality is linked with economic equality.  Although socialist nations may be democracies, socialism requires a high degree of central planning to accomplish economic equality. 2. Communism A political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government. Communist believe that a socialist economy can only come about after a violent revolution. Communist governments are Authoritarian. Authoritarian Requiring strict obedience to an authority, such as a dictator. II. Former Soviet Union A. Soviet Agriculture 1. Large state owned farms  The state provides the farmers with all equipment, seed, and fertilizer.  Farmers work for daily wages set by economic planners 2. State owned Collectives  Large farms leased from the state to groups of peasant farmers Farmers either received a share of what they produced or wages  Government established quotas and distribution 3. Soviet Industry . Factories are state owned . Planners favor the defense industry, space program, and heavy industry . Makers of consumer goods and services were stuck with leftover, lower-quality resources with which to create their products. . Industry characterized with a lack of incentives. 4. Soviet Consumers  Consumer goods were scarce and poor quality.  Poor quality goods had to be accepted by the store.  “Quantity not Quality” of goods  Consumers had difficulty getting goods  Meat (luxury good) was affordable but rarely available.

III. Problems of Centrally Planned Economies (Let us list the problems)