Characteristics of a Mixed Economic System | Economics for GCSE/IGCSE - Year 11 PDF Download

Characteristics of a Mixed Economic System

• An economic system must determine how to address the three crucial economic questions. These questions include:
  • What goods should be produced? For instance, should a nation prioritize manufacturing more weaponry for defense purposes or invest in building more educational institutions for the youth?
  • For whom should these goods be produced? Should products and services cater only to those with financial means, or should they be accessible to all members of society?
  • How should these goods be produced? Is it more prudent to rely on manual labor, or should the economy focus on technological advancements and automation?
• A mixed economic system represents a fusion of market and planned economies. In this system, individuals, businesses, and the government collectively own and manage resources for producing and distributing goods and services.
• Practically, most countries worldwide operate as mixed economic systems, with varying degrees of government intervention. For instance, China exhibits more centralized control compared to the United States.
• The extent of government involvement influences the economic direction of a nation. Greater government intervention tends to steer the economy towards planned economic practices.

Governments Intervention

• To Address Market Failures:
  • Market inefficiencies may occur where resources are not optimally allocated.
  • Individuals and firms, driven by self-interest, may not correct these inefficiencies on their own.
  • Government intervention can influence production and consumption levels to address these issues.
• Generating Government Revenue:
  • Governments require funds to provide essential services and public goods.
  • Revenue is obtained through various interventions like taxation, privatization, and sale of licenses.
• Promoting Equity:
  • Interventions aim to lessen the wealth gap between different socio-economic groups.
• Supporting Industries:
  • Governments may choose to support key sectors to enhance their competitiveness in the global market.
• Aiding Low-Income Households:
  • Poverty impacts individuals and the economy negatively.
  • Interventions include income redistribution through progressive taxation to alleviate poverty effects.