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ABSTRACTION METHODS: Abstraction is the process of simplifying the complexities of the real world by ignoring (hopefully) unimportant details, especially (for our purposes) while doing economic analysis. Three common methods of actual, real world abstraction used in economic theories are words, graphs, and equations. Words can be misunderstood. Graphs are a little more precise. And equations tend to be the most precise of the three.
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                           PLANNED ECONOMY: An economy, or economic system, that relies heavily on central planning by government to allocate resources and answer the three basic questions of allocation. A planned economy is often a type of command economy, in which government uses its coercive powers to implement central planning allocation decisions. A planned economy is one in which government commands (directs, orders, or dictates) the vast majority of resource allocation decisions according to a central plan. The contrasting economic system is a market-oriented economy, in which resource allocation decisions are achieved primarily through voluntary market exchanges.The goal of a planned economy is to avoid or correct the failings and imperfections of capitalism and a market-oriented economy. The primary imperfections are: - Market failure inefficiencies, especially market control.
- Business cycle instability that creates unemployment problems.
- Concentration of wealth and income and resulting inequality problems.
In theory, a planned economy can avoid these problems with a well-conceived, well-executed plan governing the allocation of resources, goods, and services. Communist and socialist countries, especially China and the former Soviet Union, provide the primary examples of centrally planned economies. The level of detail needed in planned economies is extensive. Every input, every output, every intermediate good, every worker, every resource is allocated based on a predetermined plan. Such planning is inherently less flexible and less efficient than markets. In practice, a planned economy tends to be inefficient because: - One, the resources used for the central planning process cannot be used to undertake actual production. In other words, a person (the planner) who spends eight hours calculating how much flour is needed to produce bread, is not actually producing any bread.
- Two, the central planning process, being developed and implemented by mere humans, is inherently flawed. Mistakes happen. Inputs are sent to the wrong factories. A decimal point is misplaced. Too much of one good is produced and too little of another. All of these mistakes mean less output is produced with available resources.
While communism and socialism are the primary examples of planned economies, market-oriented economies such as that found in the United States, are also planned economies to some degree. Federal government agencies and leaders (President, Congress, Federal Reserve System, etc.) develop and implement broad plans for the economy. Most state and local governments also have plans for their own particular segments of the economy. These market-oriented plans, however, are not nearly as detailed as those found in command economies and they tend to rely heavily on markets.
Recommended Citation:PLANNED ECONOMY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2021. [Accessed: May 11, 2021].
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Today, you are likely to spend a great deal of time waiting for visits from door-to-door solicitors wanting to buy either a small, foam rubber football or an instructional DVD on learning to the play the oboe. Be on the lookout for high interest rates.
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Paper money used by the Commonwealth of Massachusetts prior to the U.S. Revolutionary War, which was issued against the dictates of Britain, was designed by patriot and silversmith, Paul Revere.
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"Everyone is bound to bear patiently the results of his own example. " -- Phaedrus, Philosopher
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FXA
Foreign Exchange Agreement
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