Characteristics of a Mixed Economic System

• 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

To correct market failure: in many markets there is a less than optimal allocation of resources from society's point of view

• In maximising their self-interest, firms & individuals will not self-correct this 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