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    Characteristics of A Mixed Economic System

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    Characteristics of A Mixed Economic System

    Uploaded by

    Sei
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    Characteristics of a Mixed Economic System

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    2 views4 pages

    Characteristics of A Mixed Economic System

    Uploaded by

    Sei

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Characteristics of a Mixed Economic System

    • Any economic system needs to decide how to answer the three fundamental
    economic questions (see: 2.2.1 The (Free) Market System)
    o What to produce? More weapons for the military or more schools to educate
    the children?
    o Who to produce for? Only those who can afford to pay for it? Or for everyone
    in society?
    o How to produce it? Should more labour be used or should the economy focus
    on using technology instead?

    • A mixed economic system is a blend of a market & planned economy


    o Individuals, firms & the government own factors of production & distribute
    goods/services
    o In reality, almost every country in the world operates as a mixed economic
    system
    o Some countries have more government intervention than others e.g. China
    has more intervention than the USA
    o The higher the level of government intervention, the more the economy will
    lean towards operating like a planned economy

    • Governments intervention is necessary for several reasons

    A diagram showing several reasons for government intervention in mixed economic


    systems
    • To correct market failure: in many markets there is a less than optimal allocation of
    resources from society's point of view
    o In maximising their self-interest, firms & individuals will not self-correct this
    misallocation of resources & there is a role for the government
    o Governments often achieve this by influencing the level of production or
    consumption

    • Earn government revenue: governments need money to provide essential services,


    public and merit goods
    o Revenue is raised through intervention such as taxation, privatisation, sale of
    licenses (e.g. 5G licenses), & the sale of goods/services

    • Promote equity: to reduce the opportunity gap between the rich & poor

    • Support firms: in a global economy, governments choose to support key


    industries so as to help them remain competitive

    • Support poorer households: poverty has multiple impacts on both the individual &
    the economy
    o Intervention seeks to redistribute income (tax the rich & give to the poor) so
    as to reduce the impact of poverty
    • As we have seen in 2.10.3 Government Intervention to Address Market Failure, four
    of the most commonly used methods to intervene in markets are indirect
    taxation, subsidies, maximum prices, & minimum prices

    • Additional methods of intervention include regulation, nationalisation, privatisation,


    & the State provision of public goods
    • What is a mixed economic system?
    A mixed economic system is a blend of a market and a planned economy where individuals,
    firms, and the government own factors of production and distribute goods and services.
    .
    • How do governments earn revenue?
    Government revenue is earned through taxation, proceeds received from privatisation, the
    sale of licences, and the sale of goods and services.
    • State the aim of promoting equity.
    The aim of promoting equity is to reduce the opportunity gap between the rich and poor.
    • Why do government's support firms?
    Government's often support firms so as to help them remain globally competitive.
    • Why does the government support poorer households?
    The government supports poorer households so as to reduce the impact of poverty.
    Taxation takes money from the rich and passes it on to the poor in the form of benefits.
    • Which are the four most commonly used methods of government intervention in
    markets?
    The four most commonly used methods of government intervention in markets are:
    • Indirect taxation,
    • Subsidies
    • Maximum prices
    • Minimum prices
    • State two other methods of government intervention.
    Other methods of government intervention include:
    • Regulation
    • Nationalisation
    • Privatisation
    • The state's provision of public goods
    • What is the purpose of government intervention with regard to public and merit
    goods?
    The purpose of government intervention with regard to public and merit goods is to
    influence the level of production or the rate of consumption.

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