What are the two main problems that have caused the demise of the command systems?

Question

Please provide the best answer for the statement.

Answer 1

The first problem is that of coordination. In a planned economy, central planners have to coordinate millions of decisions made by consumers, producers and resource suppliers. This involved planning anything from production targets and resource allocation. This took a considerable amount of time and investment.
These decisions, however, may not produce the intended results. For example, if one firm did not meet their production quota, this would have severe ramifications on the market price of the product, the production of industries that used the product in their production, and onward. These problems would only be magnified as the economy expanded, resulting in shortages, bottlenecks and production stoppages.
Another piece of the coordination problem is that lack of a success indicator. In a command economy the major success indicator is the quantitative output, regardless of costs and quality considerations. Thus, production managers in many cases would sacrifice product quality to meet production goals.
The second problem facing command economies is an incentive problem. Since central planners determined the output level, managers had no incentive to alter production. Persistent shortages or surpluses resulted because there weren’t the necessary price indications to promote the increase or the halt of production of a certain product.
Another incentive problem was the lack of entrepreneurs. In command economies, firms got rewarded for meeting quantity targets and engaging in political maneuvering. This system did not promote technological advance.