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price reform


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In a transition from a centrally planned to a market economy this is the shift from arbitrary controlled prices towards a system in which prices reflect opportunity costs. If the systems of price control had fixed some prices too low relative to opportunity costs, which has led to excess demand, the price reform helps eliminate shortages, often at the cost of rapid inflation, as was observed in the former Soviet Union and other countries during the transition. The merit of price reform is that it helps to lead to more efficient production, and to end perpetual shortages and the waste involved in queuing.

Subjects: Economics.


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