What are the conditions that must be met for an economy to make the transition form being a planned to a market economy essays

What are the conditions that must be met for an economy to make the transition form being a planned to a market economy essays 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.(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 successful transition. If the operation for the state enterprises are being subsidise by the government or there have been loan taking from national banks as happens in planned economies, from neither the enterprise nor the workers will have an incentive to decrease the wage or employees from the effect of the aggregate demand. Aggregate demand is the total of all demands or expenditures in the economy at any given price. Aggregate demands will fall if the consumption , investment, government spending or net exports decrease on the a constant level will lead to a fall. As in the diagram below shows how the aggregate demand curve is shifted to left from the effect it happens. The failure of the transition process i...