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The Incentive Problem

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Many Economists point to what was known as the “incentive problem” under communist central planning that was a leading cause of the demise of such systems worldwide.

This concept referred to fact that

A

workers could not personally gain by responding to market failures by introducing new products or improved production techniques.

B

central planning boards had to choose the mix of resources that would be allocated to each production sector.

C

as a result of increased investment by private enterprise, more consumption took place.

D

new technological advances were not always prevalent or available for use in command systems.

E

because outputs of one industry serve as inputs of another, the failure of any single industry to meet inflexible, and sometimes arbitrary, government-set quotas created a chain reaction of negative effects.