A planned economy also called as socialistic economy is that economy where the economic activities are controlled by the central government. Here, the government takes decisions about the allocation of resources in accordance with objectives to attain economic and social welfare. Examples are Russia, China, North Korea, etc.
In centrally planned economy, the government takes decisions about the allocation of resources in accordance with the predetermined goals and objectives to attain maximum social welfare. Government decides what to produce? how to produce? and what prices are to be fixed?
In a centrally planned economy, the basic economic problems are solved as follows:
1. Regarding what to produce, the government may produce those goods and services which are most useful for its society.
2. Regarding how to produce, the most suitable technique in production is adopted whether labour intensive or capital intensive in accordance with the situation in the economy.
3. Regarding whom to produce, the goods and services are produced to those people who are suffering from hunger though there is a loss.
4. It gives importance to the quality of life rather than quantity of production.
5. It focuses the resources on rapid economic development.
