Difference between Market Economy and Centrally Planned Economy | Economics Notes Class 11 AHSEC - Nemazedu

 Q. Distinguish between a market economy and a centrally planned economy.

Ans:- The basic differences between a market economy and a centrally planned economy are:-

a. In market economy all economic activities are controlled by the market forces while in a centrally planned economy the economic activities are firmly controlled by the government or some central authority

b. In market economy economic decisions are driven by the motive of profit maximization whereas in centrally planned economy economic decisions are driven by the motive of social welfare.

c. In market economy price of goods and services is set by the forces of demand and supply whereas in centrally planned economy prices are determined by the government decision makers.

d. In market economy demand decides the quantity of output while in centrally planned economy the government decides the quantity of output.

e. In market economy the private sector dominates the economic activity while in centrally planned economy the public sector dominates the economic activity.

Q. Distinguish between microeconomics and macroeconomics.

Ans:- The difference between microeconomics and macroeconomics can be made on the following counts:-

a. Microeconomics is the study of economic actions of individuals and small groups of individuals. It includes particular households, particular firms, particular industries, etc. On the other hand, macroeconomics deals with the aggregates of these qualities.

b. The basis of microeconomics is the price mechanism which operates with the help of demand and supply forces. On the other hand, the basis of macroeconomics is national income, output and employment which are determined by aggregate demand and aggregate supply. 

c. Microeconomics is based on partial equilibrium analysis. On the other hand, macroeconomics is based on general equilibrium analysis.

d. In microeconomics, the study of equilibrium conditions are analysed at a particular period. On the other hand, macroeconomics is based on time-lags, rates of change, and past and expected values of the variables.

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Introduction to Microeconomics Part 1

Introduction to Microeconomics Part 2

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Theory of Demand