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The transition from a centrally planned economy to a free market or a mixed economy involves state owned enterprises being privatised. But economists debate as to whether this is actually beneficial to the countrys economy - Essay Example

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This model has faced criticism from various scholars who argue that it puts an economy at a disadvantaged situation. They base their arguments on the manner in which…
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The transition from a centrally planned economy to a free market or a mixed economy involves state owned enterprises being privatised. But economists debate as to whether this is actually beneficial to the countrys economy
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"The transition from a centrally planned economy to a free market or a mixed economy involves state owned enterprises being privatised. But economists debate as to whether this is actually beneficial to the countrys economy"

Download file to see previous pages A free market is grounded by forces of supply and demand in the market. In this setup buyers and sellers are allowed to interact freely without intervention from the government. Each exchange is voluntary in this market; there is a mutual understanding between all the participants. However, this will never be the case in real situations as the government is always collecting taxes, restricting entry of some of the products or staging price control mechanisms. This breeds a mixed market which is the ideal market in economics.
The transition from a centrally planned market to a free market encompasses changing of the forms of ownership from public to private. This means that free enterprises and effective competition will be generated hence free market scenario achieved. The side effects of this process include: Fall in GDP, unemployment and rise in inflation (Megginson 2005).
Among the fundamental principles governing a particular economy is the law of demand and supply. It says that as demand increases price decreases and vice versa, as supply increases price decreases and vice versa. Equilibrium is only achieved when the supply and demand are in balance (Becker 2007).
The supply aspect is the critical part which brings goods to the market, it also introduces labor costs. With the increase in wages the supply of goods and services is decreased. It is labor costs which account for approximately 75% of all input costs in the market hence the increase of wages will spur a decrease in supply of goods and services into the market.
Demand is essentially inclined in the consumption of goods and services to be supplied into the market. Without supply the demand side will obviously not be of any use or value to the consumers. Any fluctuations which may be experienced in the supply of products will immensely affect the demand of those products. For example, reducing the labor costs in the supply section will alternatively reduce the money available for demand ...Download file to see next pagesRead More
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