Explain Planning Under Free Enterprises Economies?

There is misallocation of resources because of non-existence of perfect competition both in goods and labor markets. There are impediments in the way of perfect competition regarding the investment and job opportunities. Accordingly, there will be irrational decisions on the part of producers as well as labor. Moreover, under purely free enterprise economy the decision to produce depends upon the consumer as a king. But most of the consumers will like to maximize their present consumption ignoring the needs of the future. Hence, such state of affairs will not result in optimal decisions on the part of natural economies system.

The market economy is characterized with instability. It means that economic activities are not like. Sometime there is boom, while on other occasions there is depression. Such like fluctuations in economic activities creates uncertainty and instability in the economy. Accordingly, there will be a need for planning in the free enterprise economies.

The market economy is furnished with self-interest and profit motive. Accordingly in these economies the resources will be allocated in those uses where one hopes to get the profits. This means that the production of social good like hospital, educational institutes, welfare organization, old age houses, radio and television stations and parks etc, would not be taking place in the free enterprise economy. Therefore, to provide thee public goods or public utilizes state intervention in the form of economy. Planning is of greater attraction.