Central planning

Definition

Central planning refers to an economic system where key decisions regarding production, distribution, and resource allocation are made by a central authority or government rather than through market forces.

Analogy

Imagine a school cafeteria where the menu is decided by the principal. The principal determines what food will be served, how much of each item will be available, and who gets to eat it. This centralized decision-making process is similar to central planning in an economy.

Related terms

Command Economy: An economic system where production, distribution, and resource allocation are controlled by a central authority.

Market Economy: An economic system where decisions regarding production, distribution, and resource allocation are determined by supply and demand in the marketplace.

Mixed Economy: An economic system that combines elements of both market-based mechanisms and government intervention in resource allocation.