1. [ 2.3 ] Centrally Planned Economies

2. [ 2.3 ] Centrally Planned Economies
Learning Objectives
Describe how a centrally planned economy is organized.
Distinguish between socialism and communism.
Analyze the use of central planning in the Soviet Union and China.
Identify the disadvantages of a centrally planned economy.

3. [ 2.3 ] Centrally Planned Economies
Key Terms
centrally planned economy
command economies
Socialism
communism
Authoritarian

4. The Features of Central Planning
Suppose you lived in Cuba. Each month, the government would give you cards entitling you to buy a set amount of food at low prices. However, this amount often will not last the entire month. To buy enough food for the rest of the month, you would need to pay much higher prices. If you are like most Cubans, this is difficult because your salary is low. Even if you had money, you might not be able to buy the food you want because shortages are common.

5. The Features of Central Planning
Customers at a Cuban bakery receive their daily ration of bread allowed by the Cuban government. Express Problems Clearly In this situation, who is deciding how much bread is produced by this bakery?

6. How Socialism and Communism Differ
The terms most often linked to central planning are socialism and communism. Though often used interchangeably, the terms actually describe different systems, as described in Figure 2.7.

7. How Socialism and Communism Differ

8. How Socialism and Communism Differ
Socialism and communism share key similarities but also have key differences. Draw Conclusions Why do you think communism typically requires an authoritarian government while socialism does not?

9. How Socialism and Communism Differ
Industrialization in the 1800s sometimes led to grim working conditions. The communist ideology of Karl Marx was in part a reaction to these developments.

10. Two Communist Economies
During the twentieth century, communist revolutions occurred in several countries. The histories of two of these nations, the Soviet Union and China, reveal key features of centrally planned economies.

11. Two Communist Economies
The Soviet Union
China

12. Two Communist Economies
Under Stalin, the communist Soviet government set ambitious production goals. Identify Central Issues How does this graph represent the concept of central planning?

13. Two Communist Economies
In recent years, China has undergone significant economic reform, leading to the limited introduction of free market principles—and companies.

14. Disadvantages of Central Planning
Despite the differences between centrally planned and free market economies, the two systems share many of the same basic goals. However, nations with centrally planned economies have often had trouble meeting these goals in practice.

15. Disadvantages of Central Planning
A woman shops in a mostly empty Soviet food store in Express Problems Clearly How does this photo illustrate the shortcomings of the Soviet Union’s centrally planned economy?

16. Quiz: The Features of Central Planning
Who makes most basic decisions in a centrally planned economy?
A. investors
B. consumers
C. government
D. market forces

17. Quiz: How Socialism and Communism Differ
What did Karl Marx believe about capitalism?
A. that it was the source of all value
B. that it led to exploitation of workers
C. that it distributed wealth fairly in society
D. that it was the inevitable product of socialism

18. Quiz: Two Communist Economies
Which policy change was partly responsible for economic growth in China starting in the 1970s?
A. imposing more controls on Chinese farmers
B. forcing factory workers to work on farms
C. promoting new agricultural products
D. giving farmers the chance to own land

19. Quiz: Disadvantages of Central Planning
What is one reason centrally planned economies tend not to be efficient?
A. Workers lack the incentive to work harder.
B. Decision-makers do not have enough power.
C. Decision making is too decentralized to be effective.
D. Factories produce too many types of goods.