Economic system- Mixed Economic System
Learning Contents:
·
Economic Systems- Mixed economy
·
Characteristics, Merits, and Demerits of Mixed Economy
·
Solutions to central
problems faced by Mixed Economy
Mixed
Economy
In a mixed economy, decisions
related to ‘what to produce’, ‘how much to produce’, ‘for whom to produce’ are
taken on the basis of market forces as well as social considerations. Certain sectors are reserved for private firms
which are free to take decisions with a view to maximize their profits. Whereas,
certain areas are owned by the government and decisions related to economic
problems are taken on the basis of social welfare. It is called a mixed economy as it is the mix of capitalistic
and socialistic economy.
India is a perfect
example of a mixed economy as it is operated by the private sector as well as public
sector. Private firms decide which goods and services to be produced that can
offer them high profits and government-owned firms decide which goods and
services to be produced that can maximize social welfare.
capital- intensive as
well as labor-intensive techniques are adopted for the production of goods and
services by the private sector and public sector firms in the economy. Public
sector firms would produce goods and services for the weaker sections of the
society and private firms would produce for the rich sections of society who
can afford to pay high prices.
Characteristics
of Mixed Economy
1. Collective ownership: In the mixed economy,
the factors of production such as land, labor, capital, etc. are owned
collectively by the private sector as well as public sector firm’s under the
control of the state or central government. The right to acquire, use, control and
dispose of the resources is jointly decided by the private as well as the public sector.
2.
Planned
Economy: Economic decisions such as what and how much is to
be produced, how, when, and where it is to be produced, and to whom it is to be
allocated are rationally taken. The government drafts a clear and definite
economic plan. It creates the necessary atmosphere for the private sector to
develop its own.
3.
Consumer
is sovereign: In a mixed economy, every effort is made
to provide goods and services to the consumers and to make this happen, the government provides benefits in form of tax subsidies, incentives, etc. to the
private firms to encourage the production of useful goods and services and impose
taxes, fines, and penalties, etc. to discourage the production of harmful goods
such as alcohol, cigarettes, drugs, etc. and also government also regulates or
controls private companies charging high prices from consumers as an act of
exploitation.
4.
Joint
price decisions: Price of goods and services are mainly
settled through the market forces of demand and supply but the government also regulates
the price by intervening with its policies like floor price, support price, etc.
to promote equality and social justice.
5.
Balanced
regional development: government ensures the balanced
development in an economy. It provides benefits in form of tax subsidies,
incentives, interest-free loan, etc. to promote private companies to run their
enterprise in the backward regions that will help in the overall development of
that region.
6.
Freedom and control: In a mixed economy, one
has the freedom to hold private property, can earn a profit, produce, consume and
distribute or allocate resources, etc., and also can choose an occupation acc. to
their suitability. But sometimes these freedoms adversely affect the interest
of the public. To mitigate this, the government intervenes by regulating and
controlling the areas whenever and wherever required.
7. Social Welfare: The main objective of a mixed economy is to work for the interest of society and its welfare. Social measures such as social security, public works, etc. are adopted to help poor people by generating employment opportunities, elevating poverty, and also removing the gaps of inequalities of income and wealth between rich and poor. Adequate fiscal measures are being taken to prevent the concentration of monopoly in few hands.
Solution
of Central Problems of Mixed Economy
A mixed economy shares
the characteristics of market economies as well as centrally planned economies.
The central problems like what to produce, how to produce, for whom to produce-
are jointly taken by the private as well as the public sector. The decisions are taken on
the basis of market forces as well as on the basis of social considerations.
What
to produce?
In the mixed economy
producers are free to decide what goods and services are to be produced based
on the market demand. Government plays a very limited role in what goods and
services are to be produced. Role of what is to be produced is by whom is further
demarcated with respect to the kind of goods produced in the economy. Private sector firms are allowed to
produce those goods and services which play a crucial role in the smooth
functioning of everyday people’s life (consumer and capital goods) whereas
public firms are mainly involved in the production of basic, heavy, strategic
and defense production etc. and also public utilities such as railway, road,
power generation, irrigation, etc. whose main aim is not to earn profit but for
the welfare of people.
How
to produce?
A mixed economy operates
both on the basis of labour-intensive as well as capital-intensive technique
for the production of goods and services. How the production will occur is
decided partly by the producers seeking profit and partly by the government.
Private firms mainly rely on capital-intensive technology for production whereas
government forces the use of labour in the production so as to bring equality
of income.
For
whom to produce?
The decision regarding whom to produce indicates the share of different people in national goods
and services. Due to the involvement of both private as well as public sector
firms, goods and services are produced for both rich as well as poor sections
of society. For example, private and government hospitals, schools, etc.
This economy strives to establish an equality of income to promote social
welfare.
Merits and Demerits of Mixed Economy
|
Merits |
Demerits |
|
Collective
ownership of resources by private as well as the public sector generates
efficiency. |
Unhealthy
competition may occur between private and public firms. |
|
Greater
public welfare due to less inequality of distribution of income. |
Lack
of cooperation between the public and private sector over several decisions. |
|
Absence
of monopolistic practices due to the involvement of government |
Presence
of bureaucracy, corruption, etc. due to the existence of public sector firms. |
|
Presence of consumer sovereignty as goods and services are produced as per their wishes. |
No
complete freedom of right of private property as government intervenes. |
|
Effective
planning and control by the government with regard to various economic decisions. |
No
complete freedom to the private firms or discouraging the private sector due to the excessive control of the government. |
|
Reward
to the promising and profit-generating private firms by the government. |
Private
firm’s performance may lack as against the standards due to the government regulation, control, etc. It may lead to unemployment and uncertainties in a
mixed economy. |
|
Macroeconomic
stability i.e. market fluctuations
like inflation, deflation, etc. |
|
Let’s try some questions…
MCQ based on the above learning:
1. In a mixed economy _______________.
a. the consumer plays a larger role than
the national and state government. The economy is run by the consumers'
purchasing choices.
b. the government controls all of the
decisions
c. there are both private and
government/state-owned companies that work to control the economy
d. there are only private companies that control the economy
2. Which of the following is an economic system in which the government and individuals are used to decide how to use scarce resources?
a. Free market economy
b. Mixed
economy
c. Traditional economy
d. Command economy
3.
What type of economies do most countries in the world have?
a. Free market economy
b. Mixed economy
c. Traditional economy
d. Command economy
4.
What are the two economies that make a mixed economy?
a. Market and command
b.
Market and traditional
c. Traditional and command
d. command and traditional
5.
Which is the best description of a mixed economy?
a. Government makes all of the economic
decisions.
b. People and government both play a role
in economic decisions.
c. The people make all of the economic
decisions
d. None of the above
6.
How does the government help to make economic decisions in a mixed economy?
a.
they control what is bought and sold
b. they set prices
for goods
c. they decide how
to allocate resources
d. they put
regulations on the economy
a. Consumer Sovereignty
b. Collective ownership
of resources
c. Economic equality
d. all of the above.
a. To gain private property
b. To ensure fairness in
business
c. To get rid of high taxation
d. To promote individual and social rights.
9.
What are the limitations of a mixed economy?
a.
High
Taxation and less incentive to work hard
b. All profit goes to the government
c. Restrictions on
personal freedoms
d.
Uneven distribution of resources, consumer difficulty in obtaining information,
health risk products
10.
What is the economic problem that every nation has?
a. The problem of meeting everyone’s needs
b. N
c. T
d. Not enough resources
Answers
|
1.c |
2.b |
3.b |
4.a |
5.b |
|
6.d |
7. d |
8.d |
9.a |
10.a |
Comments
Post a Comment