Mixed Market

Question 1

Disadvantages

Answer 1

How much should government intervene? Can be difficult to know how much governments should intervene, e.g. discretionary fiscal policy may create alternative problems such as government borrowing.

• Too much inequality? Mixed economies are criticised by socialists for allowing too much market forces, leading to inequality and an inefficient allocation of resources.
• Government failure. Mixed economies are criticised by free-market economists for allowing too much government intervention. Libertarians argue that governments make very poor managers of the economy, invariably being influenced by political and short-term factors.

Question 2

Advantages

Answer 2

Incentives to be efficient. Private firms tend to be more efficient than government controlled firms because they have a profit incentive to cut costs and be innovative.

• Limits government interference. Mixed economies can reduce the amount of government regulation and intervention prevalent in a command economy
• Macroeconomic stability. Governments can pursue policies to provide macroeconomic stability, e.g. expansionary fiscal policy in times of a recession

Question 3

Features

Answer 3

Individuals able to set up business and make a profit. However, usually progressive taxes and means-tested benefits to reduce inequality and provide a safety net.

• Prices are determined by market forces ‘invisible hand’. But, the government may regulate some goods. For example, placing higher tax on cigarettes to discourage use
• Most businesses are privately owned. However, the government may own or be involved in regulating natural monopolies, e.g. tap water, electricity, gas

Question 4

What is mixed economy

Answer 4

A mixed economy means that part of the economy is left to the free market, and part of it is managed by the government.

• Mixed economies start from the basis of allowing private enterprise to run most businesses.
• Then the governments intervene in certain areas of the economy, such as providing public services (health, education, waste management) and the regulation or private business (e.g. legal right to private property, and abuse of monopoly power)
• In reality, most economies are mixed, with varying degrees of state intervention.