A mixed economy is the golden combination of a planned economy and a market economy. So it follows both price mechanism and central economic planning and oversight.

The means of production are held by both private companies and public or State ownership. And while market forces decide the price, demand, supply, etc there is some government oversight to prevent monopolization and discrimination.

Features of Mixed Economic System

  • Coexistence of All Sectors: In a mixed economy all three sectors coexist in harmony, i.e. private sector, public sector, and joint sector.
  • Freedom and Control: All individuals have the freedom to produce goods and products, hold property, choose their occupation and choose or demand products/services they want. But to keep a check on monopolistic practices and discrimination of the lower sectors of society the state maintains some control.
  • Economic Planning: In a mixed economy we have a central planning authority. All sectors of the economy follow the economic plan of the state to achieve various targets and goals. The plan is not rigid but more of a general guideline for economic growth and prosperity of the nation.
  • Social Welfare: One of the main aims of a mixed economy is social welfare. It aims to reduce the wealth gap in the country and fight the inequalities of our society. The aim is to reduce poverty and unemployment. And at the same time also improve social security, public health care, public education system, etc.

Merits of Mixed Economic System

  • Freedom the citizens enjoy, especially the economic freedom to ownership of property and choice of goods and services.
  • Ownership and existence of private producers also increase capital formation in the country. There is an incentive to do better and innovate as well.
  • Price mechanism prevails. So the allocation of resources is more scientific and beneficial to the economy.
  • Also enjoys the advantages of central economic planning. This will help the economy grow rapidly and in the correct direction.
  • There is healthy competition in the market. There is no cut-throat competition and adverse tactics due to government oversight.

Government Intervention to address market failure

  • Indirect taxation: This can be added to the prices of goods & services which will discourage the consumption when it is harmful e.g cigarettes. It is also aimed at reducing their production and conserve limited resources.
  • Subsidies: This is an amount that can be paid to producers to reduce their cost of production. Government often subsidise production to encourage consumption when the good or service is beneficial to the citizens. Subsidy also makes the good or service cheaper for the masses to purchase most especially those on the lowest income. It is also aimed at creating job opportunities.
  • Rules & Regulations: When laws are enacted, it will restrict the consumption of demerit goods making it illegal for citizens to consume such goods .
  • Education: Government can insist schools educate students and community about the negative impacts of demerit goods that are largely consumed. This can also be done by informative advertising of merit goods which could replace the demerit goods. for example, the government could place a ban on smoking, then give information on fruits that could be eaten in place of smoking.

Privatisation: This is the transfer of the ownership of assets from the public sector to private sector.

Merits of Privatisation

  1. It helps reduces government debt.
  2. It reduces cost to taxpayers.
  3. Private sector have the incentive to improve efficiency as they remain competitive.
  4. It promotes an enterprising culture of risk taking and innovation.

Demerits of Privatisation

  1. The process creates a monopolist sect, who increases prices at will.
  2. Privatisation may still require government regulation & Intervention.

Nationalisation is the purchase of private sector assets by the government. This helps to protect employment and promote economic stability in key industries.

Direct Provision: In some countries the governments provide certain goods and services free of charge to their citizens which might have been paid for indirectly by them through various tax systems. Examples of these are: education, health care, refuse collection, national defence, etc

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