Centrally Planned Economy

AAA

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.

RELATED TERMS
  1. Capitalism

    A system of economics based on the private ownership of capital ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not ...
  3. Closed Economy

    An economy in which no activity is conducted with outside economies. ...
  4. Anglo-Saxon Capitalism

    A form of capitalism that is usually associated with the United ...
  5. Laissez Faire

    An economic theory from the 18th century that is strongly opposed ...
  6. Invisible Hand

    A term coined by economist Adam Smith in his 1776 book "An Inquiry ...
RELATED FAQS
  1. Is the United States considered a market economy or a mixed economy?

    The United States has always been a mixed economy, although there were periods in U.S. history when it was closer to a true ... Read Full Answer >>
  2. How much of the profitability in the Internet sector is concentrated in the few major ...

    Outside of any limiting, narrow interpretations concerning what constitutes the Internet sector, there is very little industry ... Read Full Answer >>
  3. What is the difference between consumer surplus and economic surplus?

    The consumer surplus is the difference between the highest price a consumer is willing to pay and the actual market price ... Read Full Answer >>
  4. What is the variance/covariance matrix or parametric method in Value at Risk (VaR)?

    The parametric method, also known as the variance-covariance method, is a risk management technique for calculating the value ... Read Full Answer >>
  5. How is the basket of goods selected for the Consumer Price Index?

    In the United States, the inflation level in the economy is approximated by the Bureau of Labor Statistics via a basket of ... Read Full Answer >>
  6. How can you avoid the sunk cost trap?

    Avoid the sunk cost trap by recognizing that any investment you've made into a project or decision to date should not be ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Fundamental Analysis

    4 Misconceptions About Free Markets

    These fallacies have hounded free market economists since the days of Adam Smith.
  3. Economics

    The History Of Economic Thought

    Economics is a vital part of every day life. Discover the major players who shaped its development.
  4. Personal Finance

    The History Of Capitalism: From Feudalism To Wall Street

    Find out how the economic system we now use was created.
  5. Personal Finance

    State-Run Economies: From Public To Private

    Find out how former Iron Curtain countries used private enterprise to join the world financial markets.
  6. Economics

    What Is An Emerging Market Economy?

    Emerging markets provide new investment opportunities, but there are risks - both to residents and foreign investors.
  7. Economics

    What is Adverse Selection?

    Adverse selection occurs when one party in a transaction has more information than the other, especially in insurance and finance-related activities.
  8. Economics

    What is a Capital Account?

    Capital account is an economic term that refers to the net change in investment and asset ownership for a nation.
  9. Economics

    What is a Fiduciary?

    A fiduciary is a person who acts on behalf of another person (or people) to manage assets.
  10. Economics

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center