Central planning often suffers from a coordination problem and an incentive problem.

Question

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Central planning involves a central authority making decisions and coordinating production and distribution. However, this often leads to a coordination problem as the central authority may not have complete information or may not be able to efficiently allocate resources. Additionally, central planning can create incentive problems as individuals or firms may not have a strong motivation to work hard or innovate if their efforts are not being rewarded in a market-based system.

Central Planning Often Suffers from a Coordination Problem and an Incentive