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History, 30.04.2021 20:20 marvin07

This excerpt is from an article about the challenges facing countries in transition from command to market economies. Many transition economies experienced price inflation as a result of the removal of price controls imposed by governments. When this happened, the newly privatized firms began to charge prices that reflected the true costs of production. In addition, some entrepreneurs exploited their position and raised prices in an attempt to profit from the situation. As newly privatized firms tried to become more efficient, transition economies experienced rising unemployment. Under communism, state owned industries tended to employ more people than was strictly needed, and as private entrepreneurs entered the market, labor costs were cut back in an attempt to improve efficiency.

According to Source 2, why are prices artificially low in command economies?

the government allows markets to function on their own
the producers charge prices that reflect the true cost of production
Price control from the government does not reflect the true market price
Producers raise prices in an attempt to profit from the removal of price controls.

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