2.10 Mixed Economic System

Question 1

Define a mixed economic system

Answer 1

An economic system in which both the market and govt. intervention co-exist

Question 2

What are 2 features of a mixed economic system?

Answer 2

• Both public and private sector exist
• Planning and final decisions are made by govt. while market determines allocation of resources

Question 3

What are 3 advantages of a mixed economic system?

Answer 3

• Govt. is able to provide public and merit goods
• Govt. will control monopolies and negative externalities
• Govt. can provide jobs in the public sector increasing job security and employment

Question 4

What are 3 disadvantages of a mixed economic system

Answer 4

• Taxes are imposed, increasing prices and reducing work incentives
• Laws and regulations can increase production costs
• Public sector is inefficient thus low quality goods/services might be produced

Question 5

What are 3 ways in which the govt. can correct market failure in a mixed economic system?

Answer 5

• Legislation and Regulation
• Direct provision of merit goods
• Taxation

Question 6

Explain how legislation and regulation can correct market failure

Answer 6

Govt. can impose laws to prevent negative externalities from happening, like price controls.

Question 7

What is minimum price used for?

Answer 7

implemented to protect producers’ incomes or to discourage the consumption of certain goods

Question 8

What is maximum price used for?

Answer 8

implemented to make essential goods or services more affordable for consumers

Question 9

Explain how direct provision of merit goods can correct market failure

Answer 9

direct government provision of merit goods ensures greater access and increased consumption, leading to the internalization of positive externalities and a more socially optimal allocation of resources

Question 10

Explain how taxation can correct market failure

Answer 10

imposing a tax on products (indirect taxes) with negative externalities can discourage its production and consumption

Question 11

Define subsidies

Answer 11

a subsidy is a grant (financial aid) on products that have a positive externality

Question 12

What are 3 drawbacks of government intervention in an economy

Answer 12

• Lack of incentives
• Political Incentives
• Information Failure