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Outline the Main Features of a Centrally Planned Economy. Why have Most C.P.E. Become Mixed Economies and What Problems have they Encountered during this Process?

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Introduction

Outline the Main Features of a Centrally Planned Economy. Why have Most C.P.E. Become Mixed Economies and What Problems have they Encountered during this Process? A Centrally Planned Economy is adapted in a state such as the Former Soviet Union where the state owns, operate and be in command of the industries of the country. The government also decided what to produce, how to produce and for whom to produce. The government usually employs all the population and pays for their wages and salaries; they also give them bonuses if they worked efficiently. Furthermore the government offers free services such as healthcare and education. There is also a nationwide equal treatment and distribution of wealth around the population. The government controls all the industries in the country so there will be no private-owned companies which mean that there will be no need for these industries to make a profit, because it is not very important in a centrally planned economy. The government usually offers basic standards of living (not as superior as in the free market economy) ...read more.

Middle

One example is the Sea Port in Jeddah, Saudi Arabia. Furthermore, good and bad quality jobs have the same wages and benefits which de-motivate workers and therefore make them work less efficiently. Technology and innovation does not take place as much as it does in other mixed and free market economies because of the lack of funding towards the capital goods and meanwhile concentrating on the consumer goods on the production possibility curve. Continuing on, recourses in a Centrally Planned Economy are not efficiently used and therefore wasted. Furthermore, the consumers do not have a wide choice of goods to purchase because the government creates all the goods to the consumer therefore there are no exported goods. Moreover people won't spend their money because there is nothing to spend on. In addition, foreign investment is put off because there are no chances for these investments to create any kind of profit. As we progress through the new millennium, more and more countries are moving towards the right on the economics scale. The number of Centrally Planned Economies notably decreased because it is found that it is an inefficient way of governing a country. ...read more.

Conclusion

Firms with an advantage in the market will tend to offer higher prices for its goods and services e.g. Microsoft, which will increase the opportunity cost of the public, with Public and Merit goods underprovided. Because of the changing market and economic climate, booms and slumps periods will take place, with the chances of inflation which will be unpleasant towards the general public. When a country moves to the right, it faces other types of problems. Under a planned economy prices were low, but when it is changed prices increase because the government no longer fixes the prices therefore shortages are created, one reason is that suppliers do not increase their supply on products with high demand (Price Mechanism). Inflation is created because prices shoot up; wages and salaries remain constant so in the end living standards drop. In consequence the currency becomes weaker therefore imports become more expensive. Other serious issues that should be dealt with is to make the public understand the change in the system to survive. Furthermore the new mixed system should cope with entrepreneurs well. Some goods and services that used to be offered by the government for free are no longer free, one such example is education. ...read more.

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