Final answer:
When a shortage develops in a market economy, prices rise to balance supply and demand. This system varies from a centrally planned economy, where the government controls production and pricing, often leading to inefficiencies and shortages. Several countries have historically tried to use central planning, including the Soviet Union, China, Vietnam, and North Korea.
Step-by-step explanation:
Historically, both countries in question tried to boost production through central planning, meaning the government attempted to control economic activity. This was done by establishing a series of Five-Year Plans to guide their management of the economy. However, controlling such large, complex economies proved difficult. When plans didn't meet their preset quotas, significant shortages often resulted. Hence, these countries are transitioning toward capitalism, which frees economies from central planning and allows market forces to set supply.
In a situation where a shortage develops within a market economy, the correct answer is c) Prices rise to balance supply and demand. This condition is a result of the intrinsic mechanism of supply and demand in a free market, which allows price fluctuation based on availability and demand for goods and services, leading to a natural equilibrium.
In contrast, in a traditional centrally planned economy, the government attempts to control production and pricing which often leads to inefficiency and shortages. For example, countries like the former Soviet Union, China, Vietnam, and North Korea employed such economic systems with varying degrees of success. These experiences highlight that it can be significantly challenging to accurately plan and execute extensive centralized control over economies.
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