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Concept Version 6
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Mixed Economies

A mixed economy is a system that embraces elements of centrally planned and free market systems.

Learning Objective

  • Explain the characteristics of a mixed economy


Key Points

    • Most of the means of production in a mixed economy are privately owned in a mixed economy.
    • The government strongly influences the economy through direct intervention in a mixed economy, such as through subsidies and regulation of the markets.
    • Most government intervention in mixed economy is limited to minimizing the negative consequences of economic events, such as unemployment in recessions, to promote social welfare.

Terms

  • mixed economy

    A system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies.

  • monopoly

    A market where one company is the sole supplier.


Full Text

A mixed economy is a system that embraces elements of centrally planned and free market systems. While there is no single definition of a mixed economy, it generally involves a degree of economic freedom mixed with government regulation of markets. Most modern economies are mixed, including the United States and Cuba. Countries hope that by embracing elements of both systems they can gain the benefits of both while minimizing the systems disadvantages.

In general, most of the means of production in a mixed economy are privately owned. There are some exceptions to this general rule, such as some hospitals and businesses. The mostly private ownership of all means of production allows the market to quickly respond to changing circumstances and economic factors. As a result, the market is generally the dominant form of economic coordination. However, to mitigate the negative influence that a pure market economy has on fairness and distribution, the government strongly influences the economy through direct intervention in a mixed economy. Different ways a government directly intervenes in an economy include:

  • granting a business a monopoly,
  • granting a subsidy to a sector,
  • creating and enforcing regulation,
  • direct participation in the market , or
  • providing money and other resources segments of its populations, such as through a welfare program.

Most government intervention in mixed economy is limited to minimizing the negative consequences of economic events, such as unemployment in recessions, to promote social welfare.

While mixed economies vary based on their degree of government intervention, some elements are consistent. Generally, individuals in mixed economies are able to:

  • participate in managerial decisions,
  • travel,
  • buy and sell items privately,
  • hire and fire employees,
  • organize organizations,
  • communicate, and
  • protest peacefully.

However, the government in mixed economies generally subsidizes public goods, such as roads and libraries, and provide welfare services such as social security. These governments also regulate labor and protect intellectual property.

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