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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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) and offers low prices for it's produced products. Resources such as oil, coal, cotton, etc…are manufactured and used for the society and by the society, and is not exported to other countries because there is no such thing as foreign trade in a Centrally Planned Economy. Prices for goods and services in the country are fairly stable and not very high so all the people working under the government can afford them, furthermore the society does not suffer from inflation because it is controlled by the government. Public goods, which are offered to the public by the government for the convenience of the whole country such as street lights and military defense are effectively used and driven. They are also non excludable and non rivalrous. The public pays for this service by taxation. Furthermore Merit goods are also efficiently provided because they are recognized as socially desirable and everybody gains from it especially when the government offers it.

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As the government controls all the industries in the country, personal success of a certain individual is impossible because there is no chance of him/her opening a new firm or business in that type of economy. A Centrally planned economy tends to be inefficient because it is estimating the needs and wants of millions of people in the country, which will prove to be very hard in the long run. This motive will therefore not thrive because the government will overproduce or sometimes even not provide as much consumer goods as needed, which leads to shortages. Another issue is ...

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