What are the conditions that must be met for an economy to make the transition form being a planned to a market economy
World market economies are comprised of two different types of markets. Those markets are free market economy and planned market economy. Free market economy is an economic system which resolves the basic economic problem through the market mechanism. Planned market economy is an economic system where the government, through a planning process allocates resources in society. Countries such as Russia and China whose markets are based on planned economy, have being experiencing problems such as the incentive offered buy the profit motive maybe replaced by personal ambition or a political ideal, and people have little to say in what is provided directly by the state and the purchasing shops is likely to be limited.(http://www.cato.org/pubs/joural/cj16n2-3.html). Therefore they have decided to change to a market economic system from a planned economic system. There are several conditions that have to be met to make a transition from a planned to a market economy. Those conditions are stabilisation privatisation and price liberalisation. The first of the conditions for transition to a market economy is stabilisation. Stabilisation requires a flexible, functioning product and hard working labour markets to be able to have a succe
Making a transition from one market economy to another takes several year to finish. It takes several conditions to be met while transitioning to a free market economy from a planned economy. Stabilisation, privatisation and price liberalisation are the tree main condition to be met while transition. In the time period of the transition there are always some problems happen in an economy of the country. Such problems are fall in GDP and unemployment. If we look at Russia from 1991 to 1996, at this time it was transiting to a market economy. Its gross domestic product(GDP) kept going lower in the first year. Even though it started to rise after a year, but again it went down. It shows it takes long time for the economy to become stable. Unemployment of the country starts to rise, because many people or workers were not trained for jobs such as risk-taking while going privatised. It takes them several years of training to get to a point where they can work in the transition. This how unemployment rates increases at the beginning of the transition, but decreases at the end of the phase of transition. Every country will have problems while transitioning from a planned to a market economy, but at the end in the long term it was worth doing it.
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Approximate Word count = 1816
Approximate Pages = 7 (250 words per page double spaced)
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