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2.11 Mixed Economic System YOUR NOTES

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2.11.1 Characteristics of a Mixed Economic System

Characteristics of a Mixed Economic System

Any economic system needs to decide how to answer the three fundamental economic
questions (sub-topic 2.2.1)
What to produce? More weapons for the military or more schools to educate the
children?
Who to produce for? Only those who can afford to pay for it? Or for everyone in
society?
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

Individuals, firms & the government own factors of production & distribute
goods/services
In reality, almost every country in the world operates as a mixed economic system
Some countries have more government intervention than others e.g. China has more
intervention than the USA
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
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In maximising their self-interest, firms & individuals will not self-correct this YOUR NOTES

misallocation of resources & there is a role for the government 

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
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 
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 sub-topic 2.10.3, 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

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