display | more...

The planning process determines the allocation of resources within a command economy. However, in practice consumers are given money to spend freely on a limited range of goods and services. There is therefore a type of market mechanism operating in the sale of these products. In a free market, resources are allocated by price. Price rises to the point where demand equals supply. Only those with money can afford to buy the goods. In a planned economy, planners may decide to limit prices so that goods are within the price range of all consumers. For instance, planners may set maximum prices for food or clothing. Experience shows however that low prices often result in excess demand. Everyone can afford to buy meat, for instance, but there is insufficient meat in the shops to satisfy consumer demand. There are therefore shortages and resources are usually allocated via a queueing system. When a consignment of goods arrives in a shop, a queue will develop. Those at the front of the queue will be able to buy the goods. Those at the back will be turned away empty-handed.

Log in or register to write something here or to contact authors.