Centrally Planned Economy vs Free Market Economy

What are the differences between a centrally planned economy and a free market economy?

How does each type of economic system function?

Answer:

A centrally planned economy is controlled by the government, whereas a free market economy is led by business and consumer choices with little governmental interference.

In a centrally planned economy, the government owns and runs businesses, makes decisions about production, distribution, and consumption of goods and services, and sets prices. This type of economy is characterized by a lack of consumer choice and competition, as the government is in control of most aspects of the economy.

On the other hand, a free market economy is driven by the forces of supply and demand. Businesses and consumers make decisions about what to produce and purchase, and prices are determined by market interactions. In this type of economy, there is greater freedom of choice and competition among businesses, leading to innovation and efficiency.

Overall, the main difference between a centrally planned economy and a free market economy lies in the level of government intervention and control. While a centrally planned economy is centrally controlled by the government, a free market economy operates based on the principles of individual choice and market dynamics.