Mixed Economic System

Tuesday, February 05, 2013

Mixed economic system is one in which both the private and public sector exist and operate for the welfare of the people. These economies are basically market economies managed through government intervention.



In the modern world, it is difficult to find a pure market economy or a command economy. Almost all the economies are mixed economies.

Features of Mixed Economies

1.    Co-existence of private and public sector
The private sector brings in the advantages of market economy such as freedom of choice, private property right, and profit motive and price mechanism. On the other hand, the public sector plans production, maintain law and order and ensure economic stability in the country.

2.    Centralized Planning
Mixed economy is a planned economy. There is a central planning authority that fixes the production targets and allocates resources to attain those targets. It also co-ordinates both private and public sector.

3.    Co-ownership of industries
Basic industries like defense, public utility services, and heavy industries are under public sector with the aim of welfare. Some industries are privately owned with the aim of maximizing profit, but regulated by the government.

4.    Reduction of economic inequalities
Redistribution of income and wealth through taxation and government subsidies tend to eliminate inequalities in income and wealth.


Advantages of mixed economic system

  1. The presence of price mechanism helps to allocate the scarce resources in a scientific manner
  2. Effective utilization of economic resources due to prior planning
  3. The presence of freedom of choice, profit motive, competition etc. increases the economic efficiency in the country

Disadvantages of Mixed Economic System
  1. Conflict between the sectors and its aims make it difficult to operate the system
  2. Social evils like corruption and black-markets can arise
  3. Excessive control over private section and government dictatorship will discourage private individuals and firms
  4. Dependence on the government kills efficiency of private sector

What is the role of the government in a mixed economy (arguments for government intervention).

  1. The government formulates rules and regulations to protect the producers and consumers
  2. It prevents the restrictive trade practices
  3. It protects people from fraud and dishonest labeling of goods
  4. The government tends to protect workers and provide employment
  5. It provides some merit goods and services as well as public goods and services
  6. It brings more equal distribution of income and wealth through taxation and subsidies
  7. It stabilizes the economy by using monetary and fiscal policies
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