what is central planned economy?
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A central planned economy is a type of economic system where investment, production and the allocation of capital goods take place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized or participatory forms of economic planning.[1][2][need quotation to verify].The majority of countries adopting socialism (including those based on the Soviet model) have used central planning, though a minority (such as the Socialist Federal Republic of Yugoslavia) have adopted some degree of market socialism. Non-market socialism replaces factor markets with direct calculation as the means to coordinate the activities of the various socially-owned economic enterprises that make up the economy.[3][4][5] More recent approaches to socialist planning and allocation have come from some economists and computer scientists proposing planning mechanisms based on advances in computer science and information technology.[6] A command economy or administrative command economy may refer to the economy of a country using Soviet-type economic planning which was characteristic of the former Soviet Union and Eastern Bloc before most of these countries converted to market economies. These terms highlight the central role of hierarchical administration and public ownership of production in guiding the allocation of resources in these economic systems.[7][8][9] In command economies, important allocation decisions are made by government authorities and are imposed by law.[10] Planned economies contrast with unplanned economies, specifically market economies, where autonomous firms operating in markets make decisions about production, distribution, pricing and investment. Market economies that use indicative planning can be referred to[by whom?] as planned market economies.Economic planning is an allocation mechanism based on a computational procedure for solving a constrained maximization problem and an iterative process to obtaining its solution. Planning is a mechanism for the allocation of resources between and within organizations contrasted with the market mechanism. As an allocation mechanism for socialism, economic planning replaces factor markets with a procedure for direct allocations of resources within an interconnected group of socially owned organizations which comprise the productive apparatus of the economy.[1][2] There are various forms of economic planning that vary based on their specific procedures and approach. The level of centralization in decision-making depends on the specific type of planning mechanism employed. As such, one can distinguish between centralized planning and decentralized planning.[3] An economy primarily based on planning is referred to as a planned economy. In a centrally planned economy, the allocation of resources is determined by a comprehensive plan of production which specifies output requirements.[4] Planning can also take the form of indicative planning within a market-based economy, where the state employs market instruments to induce independent firms to achieve development goals. [5] A distinction can be made between physical planning (as in pure socialism) and financial planning (as practiced by governments and private firms in capitalism). Physical planning involves economic planning and coordination conducted in terms of disaggregated physical units whereas financial planning involves plans formulated in terms of financial units.[6]