In order to achieve success, transition economies must:
A impose restrictions on private property rights
B institute domestic price controls
C increase government involvement
D promote domestic competition
The correct answer and explanation is:
The correct answer is D. promote domestic competition.
In transition economies, which are moving from centrally planned economies to market-oriented systems, promoting domestic competition is crucial for fostering economic growth and development. When competition is encouraged, it leads to greater efficiency, innovation, and more choices for consumers, all of which are essential for a thriving market economy.
In transition economies, many industries are often monopolistic or controlled by the state, which results in inefficiency, stagnation, and limited consumer choice. By promoting domestic competition, governments can help create a more dynamic and efficient economy. Competition drives firms to improve their products and services while lowering costs. It also helps in the efficient allocation of resources, as firms that fail to meet consumer demands are replaced by more competitive ones.
Additionally, when domestic competition increases, it can attract foreign direct investment (FDI), which is vital for the long-term growth of a transition economy. Foreign investors are more likely to invest in an economy that offers a competitive market environment, as it provides opportunities for profitability.
While other options like imposing restrictions on private property rights (A), instituting domestic price controls (B), and increasing government involvement (C) may have short-term effects, they can stifle the development of a market economy in the long run. For instance, imposing restrictions on private property rights undermines incentives for individuals and businesses to invest in and improve their assets. Price controls can lead to shortages or surpluses, disrupting the market equilibrium. Increased government involvement, especially through heavy regulation or ownership of industries, can reduce the autonomy and dynamism needed for a successful transition.
Therefore, promoting domestic competition is the most sustainable way to achieve success in transition economies. It allows market forces to drive growth and ensures that resources are used in the most efficient way possible.