Definition of 'Centrally Planned Economy'

An economic system in which economic decisions are made by the state or

government rather than by the interaction between consumers and
businesses. Unlike a market economy in which production decisions are made
by private citizens and business owners, a centrally planned economy seeks
to control what is produced and how resources are distributed and used. The
production of goods and services is undertaken by state-owned enterprises.

Investopedia explains 'Centrally Planned Economy'

Centrally planned economies assume that the market does not work in the
best interest of the people, and that in order for social and national
objectives to be met a central authority needs to make decisions. The state
can set prices for goods and determine how much is produced, and can focus
labor and resources on industries and projects without having to wait for
private investment capital.

Most modern economies are a mixture of centrally planned economies and
market economies, with governments controlling some aspects of the
economy and the private sector controlling others.

Central Planning Economy
Definition A centrally planned economy is an economy where decisions on what to
produce, how to produce and for whom are taken by the government.
Central planning is associated with a Communist economy; the theory is that the
government will overcome market failure and achieve equality of distribution. Supporters
of centrally planned economy argue that when economic decisions are left to the free
market. Monopolies emerge to exploit consumers. Furthermore, the Capitalists (those
who own private property) can earn money through the labour of others.
Examples of Central Planning
- The Soviet Union 1917-1991 and Soviet Bloc
For example, the Soviet Union often announced 5 year plans where targets for steel
production would be created.
Problems of Central Planning Economies
1. Governments poor at predicting future trends
2. Lack of incentives when income is guaranteed
3. Inflexible. Difficult to respond to shortages and surpluses



Term central planning Definition: A system of extensive central government control of
an economy, including organizing production and making allocation decisions. This was
the popular method of allocating resources and answering the three basic questions of
allocation under the communism/socialism economic systems of the Soviet Union, China,
and others during the 1950s, 1960s, and 1970s. Applying the communist/socialist
philosophy that private property and market allocation were "bad," central planning
relied on extremely detailed plans made by government. These plans would set specific
production quotas for individual products, parts, components, and inputs fabricated by
all of the factories and farms across the economy