Central Planning in an Economy

In a centrally planned economy, the government or a planning authority takes on the responsibility of making decisions regarding the allocation of resources, production of goods and services, and distribution of income among the population. The central planning is done through a detailed plan that outlines the goals and objectives of the economy.

Solving Central Problems

The central problems in an economy are related to the allocation of scarce resources to satisfy unlimited wants of the people. The central problems include what to produce, how to produce, and for whom to produce. In a centrally planned economy, the central problems are solved by the planning authority.

Why Planning Authority?

The planning authority has complete control over the economy and can allocate resources according to the priorities set in the plan. The planning authority decides what goods and services are to be produced, how much to produce, and at what price. The planning authority also decides how resources will be allocated and distributed among various sectors of the economy.

Market Mechanism Vs Planning Authority

In a market economy, the central problems are solved by the market mechanism. The market mechanism relies on the forces of demand and supply to determine what goods and services are produced, how much is produced, and at what price. In contrast, a centrally planned economy relies on a planning authority to make decisions regarding the allocation of resources and production of goods and services.

Conclusion

A centrally planned economy is a system in which the government or a planning authority makes decisions regarding the allocation of resources, production of goods and services, and distribution of income. The central problems in the economy are solved by the planning authority, which has complete control over the economy. In contrast, in a market economy, the central problems are solved by the market mechanism.