Mixed economic system
The mixed economy
- A mixed economy has both a private sector (firms, guided by prices) and a public sector (run by the government).
- Most real economies are mixed. The government intervenes to correct market failure.
Practice
A mixed economy has:
A mixed economy blends private firms with a government public sector that corrects market failure.
Methods of intervention
| Method | What it does |
|---|---|
| maximum price | a ceiling below equilibrium (keeps a good cheap) → causes a shortage |
| minimum price | a floor above equilibrium (keeps a price up) → causes a surplus |
| indirect tax | added to a good to cut demand for demerit goods |
| subsidy | lowers price and raises output of merit goods |
| regulation | rules and bans |
| direct provision | the government supplies goods itself (state schools) |
- Intervention has costs too, and governments can get it wrong (government failure).
Practice
A maximum price set below equilibrium causes:
Holding the price below equilibrium means demand exceeds supply — a shortage.
Practice
Government intervention has costs and can sometimes make things worse (government failure).
Taxes and rules cost money to run, and governments can get decisions wrong.
You've got it
Key idea
- a mixed economy = private + public sectors; the government intervenes to fix market failure
- maximum price → shortage; minimum price → surplus
- methods: tax, subsidy, regulation, direct provision — but watch for government failure