Mixed Economy

                                      

A Mixed Economy is defined as a mixture of free Market Economy and Centrally-planned Economy. Both the private and public sector exist side by side for the betterment of the economy. This system comprises some important features of both Market Economy and Command Economy. The major problems of what, how and for whom to produce are decided by the price mechanism and the government. The examples of this system include Maldives, India and Singapore...etc.

Features of Mixed economy

1. Private and public ownership

In Mixed Economy, means of production are owned and controlled by both private individuals and the government. Private individuals have the right to own, control and dispose land, building and other economic resources. At the same time government also owns and controls economic resources.

2. Co-existence of public sector and private sector

The public sector and private sector work together for the development of the economy. A greater degree of freedom is provided to the private sector to operate and run its economic activities. At same time, government also carry out economic activities. But this system provides an adequate authority for the government to tackle and solve the economic problems

3. Price mechanism and government control

In this system, the prices of most of the goods and services are determined by the market forces of demand and supply. The government also interferes in the market to protect the interest of the public. The prices of some essential goods are fixed by government while the prices of some other essential goods are controlled by the government.

4. Existence of freedom of choice and centralised planning.

It allows freedom of choice for individuals. Individuals are free to set up their own businesses and run their own businesses according to their own will and ability. Workers are free to choose their occupations and consumers are free to spend their money as they wish.

Mean while, there is a central planning authority which fixes the targets of production and allocates the resources for public sector.

5. Presence of profit motive and welfare motive.

The main aim of the private sector is to maximize profit while the public sector works with the motive of maximizing public welfare.

Advantages of Mixed Economy

1. Existence of freedom of choice Mixed Economy provides freedom for the private individuals and firms to decide what is good for them. Consumers, workers and producers have high degree of freedom to choose between their choices.

2. Public goods and merit goods are provided by the government The hand of the government in economic activities makes it easy to provide public goods and merit goods fairly and equally. The private sector often fails to provide these goods for various reasons.

3. The existence of price mechanism encourages competition The competition between individuals and firms leads for efficient use of resources. Individuals have the desire to be better off. Firm they try every possible way to cope in the market. This increases both productive and allocative efficiency.

4. Incentive for innovation The profit motive increases the incentive to acquire or invent new ideas, new products, new techniques and new technology. This increases the efficiency of the firms and the economy as a whole.

5. Government interference stabilizes the economy Government role as an observer or supervisor of the economy is really crucial to make the important decision and to implement necessary measures to tackle the economic problems at the right time in the right way. This helps to stabilize the economy.

6. Welfare of the people is considered Government assists the poor people and other people in need through various means. The government may approach to assist through tax exemptions, rationing, pension, unemployment benefit...etc.

7. Government takes measures to reduce social costs and increase social benefit Government monitors the economy and encourages the private sector to carry out various economic activities by considering social costs and social benefits.

Disadvantages of Mixed Economy

1. Difficult to balance private sector with public sector When private sector and public sector work together simultaneously, there is the possibility that one sector may influence the operation of the other. Moreover, as the government is the regulatory body, government officials may misuse their power.

2. Excessive control by government Mixed economy system has a natural tendency to move further and further away from reliance on competitive market mechanism to greater and greater bureaucratic controls and interventions. This may discourage the private sector.

3. Imposition of taxes discourages private individuals and firms Existence of tax system reduces incentives to work hard. Tax on the income of the people discourages the workers to work hard and tax on profit of firms discourages the firms.

4. Increased Corruptions and bribery Corruptions and bribery are characterised in a mixed economy. It will reduce the efficiency of the economy.