IGCSE EDEXCEL Economics

Chapter 11
THE MIXED ECONOMY

● Command economy: A type of economic system where the government makes all the decisions.
They provide goods like healthcare, education, defense, etc. the government what to produce, how
to produce, and for whom to produce. Goods are distributed from state_owned shops and sold to
customers at prices set by the government. However, there is a lack of profit motive which may lead
to losses, inefficiency, and wastage of resources.
● Free market economy: A type of economic system where private individuals make all the decisions.
They decide what to produce, how, and for whom to produce. They decide the price according to
demand and supply. However, as there are no government intervention private individuals will likely
charge higher prices and provide quality in return.
● Mixed economy: It is where government and private individuals run the market together
simultaneously. The government provides goods like streetlights, healthcare, and education defense,
on the other hand, private individuals supply products and services that can be charged for profit.
The government may produce goods for free for everyone whereas private individuals will only serve
those who can pay.

● Why does a market fail and the government intervenes?

A market fails because:
● Firms do not take into account external costs like pollution and chemical waste.
● there is no competition, therefore, firms can charge higher prices low quality, and limited
sources of products
● When markets are in absolute control it is likely that customers will not have access to
proper information, which may lead to customers purchasing the wrong goods and services
and paying a higher price.
● The market fails to provide certain goods like merit goods (education, healthcare,
vaccination) and public goods (police, street lights) because they are non-rival and non-
excludable.
Government intervenes because:
● Government can improve laws against businesses charging higher prices.
● The government uses tax money for providing public and merit goods.
● provide correct information to customers and raise awareness.
● What is a missing market?
Private individuals do not provide public goods and merit goods at all due to them being non-
excludable and non-rival.
● Non- excludability: This means that once these goods or services are provided
everybody can use them. An individual customer cannot refuse consumption of the
goods or service even if they try. For example, the police are in charge of protecting
everyone, and street lights- whoever walks down the street are using them.
● Non-rivals: Consumption of one individual will not reduce the amount available to
others. For example, the police will protect everyone similarly and everyone will have
access to the same amount of light.
 If private individuals provided public words everyone could become a free rider.
● Free rider: A free rider is a person who consumes goods and services without having
to pay for them. Therefore, the government intervenes and provides these.

● Aims of the private and public sector.

Private sector:
● Sole traders, partnerships, and Limited companies.
● profit maximization, higher market share.
● achieve survival at its initial stage.
Public sector:
● Central government department, public corporations, and Central Bank.
● minimizing costs, and improving quality.
● allow for social costs and benefits.